Net Operating Loss (NOL) Provisions CARES Act

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The CARES Act implemented numerous changes regarding Net Operating Losses. It allows for a 5 year carry back. The effective date for this change means the change applies to the tax years 2018, 2019, and 2020.

Modification of Rules Relating to NOL Carrybacks

  • Under the CARES Act, an NOL incurred in tax years beginning after December 31, 2017, and before January 1, 2021, may be carried back to each of the five tax years preceding the tax year of such loss, including those years when the tax rates were 35%, even though the losses were generated in years when the tax rate was 21%.
  • Businesses will be able to amend or modify tax returns for tax years dating back to 2013 in order to take advantage of the carrybacks.
  • Carrybacks are not allowed to offset IRC Section 965(a) income in those taxable years. Section 965(a) relates to Subpart F income from foreign corporations.
  • C Corporations may elect to file for an accelerated refund to claim the carryback benefit.
  • If advantageous, a taxpayer can still waive the carryback and elect to carry forward an NOL to subsequent tax years.
  • As part of this provision a technical correction was made to the excess business loss provision to clarify:
    1. Net operating loss and qualified business income deduction under Section 199A are not included in calculating an excess business loss, and
    2. The extent to which capital gains are taken into account in determining the amount of an excess business loss.
      • Deductions for capital losses shall not be taken into account.
      • Any capital gains taken into account shall not exceed the lesser of:
        • Capital gain net income determined by taking into account only gains and losses attributed to a trade or business, or
        • The capital gain net income.
      • The technical correction would apply to years beginning after December 31, 2017.

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