The Coronavirus Aid, Relief, and Economic Security (CARES) Act -- the $2 trillion spending law approved on March 27, 2020 in response to the COVID-19 economic crisis -- also changed the handling of net operating losses in federal tax law, which may be of interest to some insights businesses in need of liquidity.
Taxpayers with 2018, 2019, and/or 2020 net operating losses are now allowed to carry those losses back five years. Until the CARES Act, most such losses could only be carried forward.
The 2017 tax law had capped the impact of net operating losses at 80 percent of taxable income, but the CARES Act repealed that limitation for 2020 and earlier. According to law firm Covington & Burling, starting with 2021, "taxable income would first be reduced by NOLs arising in taxable years beginning before January 1, 2018. Taxable income would be further reduced by the lesser of (i) the aggregate amount of NOLs arising in taxable years beginning after December 31, 2017, or (ii) 80% of taxable income determined after reduction for pre-January 1, 2018, NOLs." The CARES Act also disregards “the Section 250 and 199A deductions for purposes of computing the 80 percent taxable income limitation. These changes would be effective for taxable years beginning after December 31, 2017, and taxable years beginning on or before December 31, 2017, to which NOLs arising in taxable years beginning after December 31, 2017 are carried.”
On April 9, the Internal Revenue Service (IRS) issued guidance on how to handle the loss carryback, as well as granting a six month extension for filing Forms 1045 or 1139 "with respect to the carryback of a net operating loss that arose" between the beginning of 2018 and June 30, 2019.”
This information is not intended and should not be construed as or substituted for legal advice. It is provided for informational purposes only. It is advisable to consult with private counsel on the precise scope and interpretation of any laws/regulation/legislation and their impact on your particular business.