Businesses seeking to claim net operating losses incurred during the height of the pandemic in 2020 and 2021 cannot do so through the Bureau of Internal Revenue’s (BIR) standard electronic filing systems, which remain hard-coded for a three-year carry-over window.

Under Republic Act No. 11494 (the Bayanihan to Heal as One Act), businesses are permitted to deduct losses incurred during the 2020 and 2021 taxable years over an extended five-year period—a key recovery measure designed to soften pandemic-induced economic shocks. Typically, when a firm incurs a net operating loss carry-over (NOLCO), it owes no income tax for that year and can offset the loss against future taxable income, lowering its tax liability.

However, according to the tax agency, the current eBIRForms Package and Electronic Filing and Payment System (eFPS) only allow taxpayers to declare NOLCO from the previous three taxable years. This technical glitch prevents the proper reflection of pandemic-era losses on later returns.

To address this issue, BIR Commissioner Charlito Martin R. Mendoza issued Revenue Memorandum Circular No. 081-2026, establishing an interim “workaround” that allows taxpayers to accurately declare NOLCO on BIR Forms 1701, 1702-RT, and 1702-MX without invalidating their electronically filed returns.

Under the new guidance, taxpayers must first enter as much of the loss as the standard NOLCO schedule will allow. For any remaining balance, filers are instructed to use the Special Allowable Itemized Deductions section.

Taxpayers must explicitly write the specific NOLCO year in the description field and cite RA 11494 as the legal basis.

The BIR reminded taxpayers to double-check their math, emphasizing that the total NOLCO claimed must not exceed the allowable deduction limit for the taxable year.

The tax agency also clarified that the five-year extension applies strictly to specific dates. Businesses with fiscal years ending before July 31, 2020, or after June 30, 2022, cannot avail of the extra two-year carry-over period.