March 26th, 2020
Guidance on the Cares Act NOL (Net Operating Loss) Rule
The Act amends section 172(b) to allow for the carryback of losses arising in a taxable year beginning after Dece. 31, 2017, and before Jan. 1, 2021, to each of the five taxable years preceding the taxable year of the loss. For calendar year taxpayers that generally means NOLs incurred in tax years ending Dec. 31, 2018, 2019 and 2020 are eligible for a five-year carryback. Moreover, the carryback provision allows a corporation to carryback NOLs to taxable years for which the corporate tax rate was 35% (periods prior to 2018), as compared to the current 21% rate. An added benefit exists since the corporate equity reduction transaction rules of section 172(h) were repealed with the TCJA, meaning it is more likely that the full amount of NOLs should be available for the five-year carryback.
The Act provides a special rule for filing a carryback claim for the 2018 tax year (and certain fiscal or short-tax years), which will deem a carryback claim timely filed if it is filed no later than 120 days after the enactment of the Act.