Key Information Regarding Delayed Limitations and Expansion of Net Operating Loss (NOL) Carrybacks in the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)

On March 27th, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was passed by Congress and signed into law by the President. The CARES Act is over 800 pages long and contains a lot of information for many different groups of people. The following information should be of interest to aspects of the CARES Act that apply directly to taxpayers with net operating losses (NOLs). A guide to the CARES Act can be found here.

Changes to Previous NOL Carryback Legislation

The 2017 Tax Cuts and Jobs Act limited NOLs that arose after 2017 to 80% of taxable income. It also eliminated the ability to carry NOLs back to prior tax years. In light of the recent COVID-19 crisis, these stipulations have been changed. The CARES Act now allows taxpayers to carryback 100% of NOLs from the previous five tax years. This new legislation effectively delays carryback limitations and prohibitions until 2021. A guide to recent legislation regarding NOLs can be found here.

Additionally, a six-month extension has been granted for filing NOL forms by the IRS in Notice 2020-26, which can be found here. These NOL forms are Form 1045 for individuals, trusts, and estates, and Form 1139 for corporations.

The goal in expanding the percentage of NOLs able to be carried back and expanding the timeframe in which one can carryback these NOLs is to ensure that taxpayers affected by COVID-19 can get cash quickly. Even if these losses are not necessarily related to COVID-19, taxpayers can offset their taxable income for losses in the 2018, 2019 and 2020 taxable years.

While these are all welcome measures to allow more funding to be available to taxpayers under the CARES Act’s provisions, the interplay between these new provisions and the previous 2017 Tax Cuts and Jobs Act means that you may want to carefully evaluate your options and seek guidance about a course of action.

As always, Baxter Baker is here to help with a fresh and personal look at your legal needs. If you have any questions concerning these provisions, do not hesitate to contact Daryl J. Sidle at 410-385-8077 or James E. Baker at 410-385-8122.