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Section 461(l) Excess Business Loss Limitations for Non-Corporate Taxpayers

Excess Business Losses: What Are They and What to do With Them

Recording of a 75-minute CPE webinar with Q&A

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Conducted on Wednesday, May 15, 2019

Recorded event now available

or call 1-800-926-7926

This course will provide tax advisers with a practical exploration of the loss limitation rules of Section 461(l) for non-corporate taxpayers passed in the 2017 tax reform bill. The panel will discuss what items are included or excluded in the business loss calculations, the effect of such a loss and its carryover to other taxable years, and the interactions with the passive activity loss rules and the Section 199A pass-through business income deduction.

Description

The 2017 tax reform legislation enacted the excess business loss (EBL) limitation rule of new Section 461(l). For a tax provision that is expected to raise $150 billion in federal revenues over a decade (more than GILTI, BEAT or all the fringe benefit changes combined), the EBL rules have not received a significant amount of attention from commentators or the IRS and Treasury.

The new law disallows the current deduction of any EBLs, a new statutory creation under Section 461(l). These losses are generally the excess of the taxpayer's aggregate deductions attributable to trades or businesses over the sum of (1) the taxpayer's aggregate gross income or gain attributable to such trades or businesses, and (2) $250,000 ($500,000 in the case of a joint return). In other words, net business losses may offset only up to $250,000 or $500,000 of investment income and other non-business income. Major questions have arisen over whether various tax items are business or non-business for this purpose, such as wages and salaries, gain on the sale of partnership interests or S corporation stock, cancellation of debt (COD) income, the Section 199A pass-through business income deduction, and (ironically) certain losses from the disposition of business property.

EBLs are carried forward as a net operating loss (NOL), but there is some uncertainty and debate over how to apply the carryover rules. In any case, the NOL can offset only up to 80% of pre-NOL taxable income in the carryover year.

Complicating matters are a number of identified technical corrections for Section 461(l), a lack of official guidance, and a relative scarcity of academic or practitioner commentaries on key issues.

Listen as our experienced panel provides a practical guide to the current state of Section 461(l) as it applies to non-corporate taxpayers.

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Outline

  1. Section 461(l) overview
  2. Effect of EBL and carryover
  3. Calculating EBL
  4. Interactions with other Code provisions
  5. Items awaiting future IRS guidance

Benefits

The panel will discuss these and other relevant topics:

  • Other Code provisions that may be analogous and help in computing EBL
  • Treatment of partnership and S corporation items for their partners and shareholders
  • Intersection of EBL with Section 199A qualified business loss carryovers
  • Impact of Section 461(l) on passive and non-passive activities

Faculty

Zhang, Libin
Libin Zhang
Partner
Fried Frank Harris Shriver & Jacobson

Mr. Zhang is a tax partner in Fried Frank's New York office. Prior to joining the firm in 2019, he was a tax...  |  Read More

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