The IRS has finalized proposed regs it issued in 2020 that provided rules for consolidated net operating loss carrybacks. The final regs adopt the 2020 proposed regs without substantive change and remove the 2020 temporary regs. (TD 9977)
NOL carryback amendments.
Both the Tax Cuts and Jobs Act (TCJA; PL 115-97) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; PL 116-136) amended the net operating loss (NOL) rules in Code Sec. 172.
The TCJA, with certain exceptions, generally limited the NOL deduction to 80% of taxable income and prohibited carrying back NOLs arising in tax years beginning after December 31, 2017 (post-2017 NOLs). The CARES Act changed the NOL calculation and the carryback rules.
Proposed and temporary regs.
In July 2020, the IRS issued proposed regs (REG-125716-18) that, in part, implemented the amendments to the NOL rules enacted by the TCJA and the CARES Act. The proposed rules allowed consolidated groups that acquire new members from another consolidated group an election to waive all or part of the pre-acquisition portion of the carryback period for certain losses belonging to the acquired members when there is a retroactive statutory extension of the NOL carryback period. See Proposed reliance regs provide guidance on consolidated net operating losses (07/07/2020).
Note. The 2020 proposed regs, other than Proposed Reg §1.1502-21(b)(3)(ii)(C) and (D), were adopted as final regs (TD 9927) in October 2020. See Final regs provide guidance on consolidated net operating losses (10/14/2020).
At the same time, the IRS issued temporary regs (TD 9900) that provided guidance for consolidated groups on (i) the application of the 80% of taxable income NOL limitation enacted as part of the TCJA and subsequently amended by the CARES Act, and (ii) the CARES Act changes to NOL carrybacks (NOL absorption rules). See Temp NOL regs respond to retroactive extension of carryback period due to COVID-19 (07/07/2020).
Note. The preamble to the 2020 temporary regs includes a background discussion of the rules regarding NOL carrybacks and carryovers and the related consolidated return regulations.
Final regs.
The final regs adopt the 2020 proposed regs without substantive change and remove the 2020 temporary regs.
Effective date.
These regs are effective July 10, 2023.
For more information about consolidated net operating loss (CNOL) deduction, see Checkpoint’s Federal Tax Coordinator ¶E-9051.
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