NOLs, Carryback Claims, and Amended Returns: Maximizing Benefits of the CARES Act

Description

The CARES Act provides a five-year carryback of net operating losses (NOLs) generated in the years 2018-2020. Although years 2018-2019 have passed, we are in the midst of 2020, which opens up opportunities to plan into NOLs and free up much-needed cash for individuals and businesses. Maximizing depreciation and carrying back losses to free up unused credits can provide significantly needed cash for struggling businesses.

In addition to reviving the NOL carryback, the CARES Act and other recent rulings have given taxpayers numerous ways to generate additional losses. New Section 163(j) in the Tax Cuts and Jobs Act of 2017 capped the deduction for business interest expense at 30% of adjusted taxable income. This limitation has been increased to 50% for tax years 2019 and 2020. The long-awaited correction to the life of qualified improvement property (QIP) was included in the act as well.

Although the addition of the NOL carryback is welcomed, it is also mandatory unless waived. Some individuals and businesses may find it advantageous to forego the carryback period despite the ability to carryback NOLs to a higher tax rate environment. Taxpayers making Section 965 transition payments have further considerations since they can elect to exclude 965(a) inclusion years from the carryback period. Understanding when and how to forego the carryback is essential for tax professionals working with taxpayers with losses.

Listen as our panel of NOL experts explains the new IRS procedures for submitting carryback claims, how and when to file a carryback claim, planning opportunities available based on recent relief, and best practices for preparing amended returns.