The President issued an emergency declaration in response to the coronavirus pandemic under the Stafford Act and subsequently approved major disaster declaration requests under Sec. 401(a) of the Stafford Act for all 50 states. Jurisdiction for the state of emergency, which took effect January 20, 2020, provides relief and assistance to businesses – including tax relief. Businesses experiencing financial loss directly due to COVID-19, during the disaster year, may elect to accelerate those losses to the 2019 fiscal year.
To accelerate a loss under these relief provisions:
- Compensation for the loss cannot come from insurance or otherwise
- It must be by a closed and completed transaction
- The loss must be caused by an identifiable event
- The losses sustained must relate to the disaster event and must be sustained during the taxable year of the event
Potential losses to accelerate on the preceding year tax return, if directly attributable to COVID-19:
- Abandonment of business deals for costs otherwise capitalized
- Abandonment of leasehold improvements
- Costs related to the closure of store, branch, and facility locations
- Inventory spoilage during the government shutdown
- Losses from the sale or exchange of property
- Mark-to-market securities
- Permanent retirement of fixed assets
- Prepaid events for travel, conference space, and hotel rooms when a refund or credit is not provided
- Prepaid expenses to fulfill a contract when the contract is canceled
- Payments to cancel contracts, leases, or licenses
- Worthless securities (excluding bad debts)
The election to accelerate the loss is done on an original or amended 2019 tax return. This is a temporary tax adjustment, meaning any loss accelerated into the preceding tax year will no longer offset the current year activity.
For mortgage bankers, there may be losses on hedge positions or mortgage loans held for sale on closed deals that can be taken in 2019. All losses must be the direct result of the current coronavirus pandemic.
If the disaster loss creates a Net Operating Loss (NOL) in 2019, the taxpayer may have the added benefit of carrying back the NOL up to 5 years.
If you would like to discuss your filing options under the disaster relief provisions related to COVID-19, please contact Henry Chavez, Principal, Spiegel Accountancy Corp at 925.949.5697 or firstname.lastname@example.org.
About the Author
Henry Chavez serves as a strategic resource for growing organizations, guiding their development and success. A seasoned public accountant, Henry provides assurance and business consulting services to privately held businesses in the financial services, manufacturing and distribution, technology, and non-profit sectors.
Before joining Spiegel Accountancy Corp, Henry spent 15 years at PricewaterhouseCoopers (PwC), where he provided assurance services as a senior manager, working with international clients in banking and manufacturing and distribution. His PwC experience included several years in South America working with various European and North American multi-national firms.
Henry holds a B.A. from the University of California, Santa Cruz and an MBA from the University of California, Irvine. He is a licensed California CPA and a member of the American Institute of CPAs and the California Society of CPAs. Henry also serves on committees for the California Mortgage Bankers Association, acted as a speaker for the California Mortgage Bankers Association, and provides training courses on financial accounting and reporting issues to the mortgage industry. Henry’s hobbies include cooking, reading, exercising, and spending time with his family – his mother, grandmother, two sons and daughter.