Changes to Net Operating Loss (NOL) Rules for Corporations (CARES Act Sec 2303)

  • Rule per TCJA prior to CARES Act: NOL carryback is disallowed and carryover is allowed indefinitely but its use is limited to 80% of taxable income for the year.
  • Changes to this rule per CARES Act are as under:
    1. Losses from 2018, 2019 and 2020, will be permitted to be carried back for up to five years. Also, a taxpayer will be permitted to forgo the carryback, and instead may carry forward the loss.
    2. Losses carried to the tax years 2019 and 2020 will be permitted to offset 100% of taxable income for that year.

    Modification to the Business Interest Limitation Rule (CARES Act Sec 2306)

    • Rule per TCJA prior to CARES Act: Business interest was deductible only up to 30% of an entity’s adjusted taxable income (except for floor plan financing which was deductible at 100% of adjusted taxable income). Any excess interest was allowed to be carried forward. And for partnerships, any interest disallowed at the partnership level is passed out to the partners, and is suspended at the partner level.
    • Changes to this rule per CARES Act are as under:
      1. Business interest will now be deductible up to 50% of an entity’s adjusted taxable income for 2019 and 2020.
      2. Business can elect to use its 2019 adjusted taxable income in computing its 2020 limitation.
      3. For partnerships, for tax year 2020, 50% of the suspended interest “frees up,” and will be fully deductible, while the other 50% will remain suspended until the partnership allocates excess taxable income or excess interest income to the partner [or the partnership is no longer subject to Section 163(j)].

      Corporate Alternative Minimum Tax (AMT) (CARES Act Sec 2305)

      • Prior to the TCJA, when a corporation paid the AMT, such AMT amount paid was allowed as a credit in a subsequent taxable year. Effectively, the AMT was a prepayment of corporate taxes.
      • The TCJA repealed the AMT for corporations for taxable years beginning after December 31, 2017, and modified Code section 53 to treat 50% of any AMT credit as refundable in 2018, 2019, 2020, and 100% as refundable in 2021.
      • The CARES Act makes the AMT credit 100% refundable for tax years 2018 and 2019. Accordingly, corporate taxpayers with non-refunded AMT credits will be able to amend their 2018 returns (and 2019 returns if already filed) and claim a refund for those amounts.

      How can Initor Global help the CPA Firms?

      We understand that most of the CPA firms would have already started analyzing the impact of the above stated tax law changes to see if they are beneficial for any of their corporate clients in order to take a decision to amend their prior year tax returns. Initor Global can assist your firm in preparing these amended tax returns, and also simultaneously assist in preparation of other tax returns so that your precious time that is freed up can be effectively utilized at the decision-making level and to focus on analysis to provide maximum benefit to the clients while we take care of all of your back-office needs.

      Cares Act-Some implications for your business from an income tax perspective
      Article Name
      Cares Act-Some implications for your business from an income tax perspective
      Among its many provisions designed to stimulate the economy and provide relief to businesses, the CARES Act includes several tax provisions designed to do so through the US Internal Revenue Code.
      Publisher Name
      Initor Global
      Publisher Logo
  • error: Content is protected !!