State legislatures may need to retroactively decouple from federal coronavirus relief provisions as tax departments receive amended tax returns seeking refunds, said Michael T. Fatale, the deputy general counsel at the Massachusetts Department of Revenue. He spoke at a previously recorded session of the Virtual Advanced State and Local Tax Institute at Georgetown University Law Center in Washington, D.C., that was released Wednesday.
Under the Coronavirus Aid, Relief and Economic Security Act
, or CARES Act, taxpayers can carry back NOLs to 2018 through 2020, and the 2017 federal Tax Cuts and Jobs Act's limit on NOLs to 80% of taxable income is suspended."There are these revenue issues from the states right now and so what will states do when they see these amended returns?" Fatale said. "It's possible that these returns will, on the one hand, perhaps result in audits."
Lawmakers will likely have to pass legislation in 2021 to decouple from the provisions since many legislatures have adjourned for the year, Fatale said. He said lawmakers may not even be aware of the potential problems because, due to filing extension, states have not received many amended returns due to CARES Act provisions.
"Refund requests are going to come in," Fatale said, and states will likely move to reduce the amount of refunds they will have to issue.
Taxpayers don't tend to like retroactive fixes, but this is a circumstance where lawmakers won't know the budget effects until later in time, he said.
Since things are so uncertain, taxpayers should just keep an eye on state lawmakers, said Paul A. Broman, senior managing tax counsel at BP America Inc.
"I just always kind of hold off and monitor," Broman said. "This is such a unique situation with the revenue issues that will be facing the states. To be honest, I don't know quite what and when to expect it."
--Editing by Joyce Laskowski.
For a reprint of this article, please contact reprints@law360.com.