The Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular (RMC) 81-2026, which prescribes temporary workaround procedures for taxpayers claiming the five-year Net Operating Loss Carry-Over (Nolco) incurred in taxable years 2020 and 2021 through the Offline Electronic Bureau of Internal Revenue Forms (eBIRForms) Package and the Electronic Filing and Payment System (eFPS).
Background
Under Revenue Regulations 25-2020, taxpayers that sustained net operating losses during taxable years 2020 and 2021 were granted an extended Nolco period, allowing such losses to be carried forward and deducted from gross income for the next five consecutive taxable years immediately following the year of loss, unless otherwise disqualified under existing
tax rules.
However, the current versions of the Offline eBIRForms Package and eFPS only accommodate the reporting of Nolco arising from the three immediately preceding taxable years. As a result,
taxpayers claiming Nolco incurred in 2020 and 2021 may be unable to properly reflect the allowable deductions in their income tax returns filed through these electronic platforms.
Prescribed workaround procedures
To address this system limitation, RMC 81-2026 provides a temporary reporting mechanism for taxpayers filing their returns through the Offline eBIRForms Package or eFPS.
Taxpayers claiming Nolco incurred in taxable years 2020 and/or 2021 should:
1. Reflect Nolco amounts that can be accommodated by the system in the Nolco schedule within the return;
2. For Nolco amounts relating to taxable years 2020 and/or 2021 that cannot be reflected in the Nolco schedule:
• Proceed to the Special Allowable Itemized Deductions schedule;
• Indicate the specific Nolco year being claimed (for example, “Nolco - TY 2020” or “Nolco - TY 2020”) together with the legal basis, Republic Act No. 11494 (Bayanihan to Recover as One Act); and
• Enter the corresponding Nolco amount being claimed for the current taxable year;
3. Ensure that the aggregate Nolco claimed, whether reported through the Nolco schedule or the Special Allowable Itemized Deductions schedule, does not exceed the allowable Nolco deduction for the taxable year;
4. Validate the return to confirm that no validation errors exist; and
5. Submit the return electronically after successful validation.
Effectivity and coverage
The workaround procedures under RMC 81-2026 cover taxpayers with fiscal years ending from July 31, 2020, to June 30, 2022, claiming Nolco incurred in taxable years 2020 and 2021. Taxpayers with fiscal years ending before July 31, 2020, or after June 30, 2022, that incurred net operating losses are not entitled to the extended five-year Nolco period and, therefore, cannot avail themselves of the prescribed workaround procedures.
Source:
P&A Grant Thornton
Certified Public Accountants