About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (April 10, 2020)

handle is hein.crs/govebev0001 and id is 1 raw text is: Congressional ~.Research Service ~ ~~ ~informing the legis!ative debate since 1914___________________ Tax Treatment of Net Operating Losses (NOLs) in the Coronavirus Aid, Relief, and Economic Security (CARES) Act Updated April 10, 2020 Increased benefits from net operating losses (NOLs) had been discussed as part of the response to the economic effects of the coronavirus (COVID-19). The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) included a provision increasing tax benefits for NOLs. This revision temporarily suspends current rules that were last revised in the 2017 tax revision, popularly known as the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97). Temporary Revisions in the CARES Act Under current permanent law, when a firm has a loss (a net operating loss, or NOL), taxes are not reduced immediately beyond zero. Rather, the business owes no income tax in that tax year and the loss can be carried forward indefinitely. In subsequent years, the NOL can be used to reduce up to 80% of taxable income, thus reducing taxes in the future. Individual taxpayers' losses that can be offset against nonbusiness income are limited to $500,000 for joint returns and $250,000 for single returns, under a provision that expires after 2025. The current permanent rules were enacted in the TCJA and became effective for 2018. Prior to that revision, losses could be carried back two years and carried forward for 20 years, fully offsetting tax liability. Carrybacks of losses yield immediate tax reductions, while carryforwards reduce future tax liabilities. There were no dollar limits on loss offsets for individuals. The CARES Act allows firms to carry back losses in tax years beginning after December 31, 2017, and before January 1, 2021 (for calendar year firms, covering 2018, 2019, and 2020) for up to five years. NOLs carried back can also offset 100% of taxable income-an increase from the 80% offset under permanent law. The Internal Revenue Service has issued guidance. In addition to allowing immediate tax benefits for losses incurred in those years and increasing the loss carryback to cover 100% of taxable income, NOLs carried back are allowed to reduce taxable income that was previously taxed at higher tax rates under pre-TCJA rates. The TCJA reduced corporate rates from 35% to 21%, and reduced individual rates in many cases, including lowering the top individual rate from 39.6% to 37% or 35%. Thus, for corporations, a dollar of loss carried forward to the future would save Congressional Research Service https://crsreports.congress.gov IN11296 CRS INSIGHT Prepared for Members and Committees of Congress

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most