CARES Act Provides New Opportunities for Businesses to Utilize Net Operating Losses, But Deadlines Are Looming

Wolters Kluwer looks at CARES Act changes impacting businesses

Business taxpayers have new opportunities to generate cash from the net operating loss (NOL) provisions of the CARES Act. Taxpayers who have net operating losses or who may create net operating losses through other provisions of the CARES Act, such as additional first-year depreciation or additional business interest deductions, need to be familiar with the elections and deadlines to act on NOLs. Some of those deadlines are quickly approaching.

IRS provides guidance on Net Operating Loss changes

The Tax Cuts and Jobs Act (TCJA), enacted in 2017, eliminated NOL carrybacks, allowed unlimited NOL carryforwards, and provided an 80 percent of taxable income limit on NOL deductions. Through a language error, the TCJA imposed a retroactive elimination of NOL carrybacks on businesses with fiscal years starting in 2017. The CARES Act, enacted in March 2020, created a five-year NOL carryback for tax years 2018, 2019 and 2020; eliminated the 80 percent of taxable income limit on NOL deductions for 2018, 2019 and 2020; and eliminated the retroactive effect of the NOL carryback elimination on fiscal year businesses. The IRS has provided guidance and elections for implementing these changes.

  • NOL carrybacks can now go back as far as 2013, when tax rates were higher than under current tax law
  • Claiming net operating loss carrybacks for prior years can result in quick tax refunds from the IRS, providing much needed cash to help get businesses through a shutdown period
  • Taxpayers can elect to exclude from carryback years those years that include a tax on unrepatriated earnings
  • Taxpayers can elect to waive NOL carrybacks for 2018 or 2019
  • Taxpayers who have a 2018 NOL carryback have only until June 30, 2020 to claim that carryback
  • Fiscal-year taxpayers who experienced a retroactive loss of NOL carrybacks for part of 2017 have until July 27, 2020 to claim those carrybacks
  • Corporations claim the carryback on Form 1139; other taxpayers on Form 1045
  • Partnerships subject to the partnership audit rules are given special permission to file amended Form 1065s and K-1s, permitting partners from those earlier years to take advantage of NOL carrybacks
  • Special rules apply to Real Estate Investment Trusts and life insurance companies
  • These changes should be especially helpful to businesses that experience a net operating loss for the first time in 2020 due to the shutdowns & restrictions resulting from the COVID-19 pandemic

To read the full press release, click here.

Wolters Kluwer expert available to explain new options

Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, can help explain the new options available for net operating losses.

Media Contact

To arrange interviews with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact:

BART LIPINSKI
847-267-2225
Bart.Lipinski@wolterskluwer.com

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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