New Corporate Net Operating Loss Tax Provisions

It seems most every time Congress takes up any kind of tax legislation, a change in the net operating loss (NOL) rules is required.  The recently passed Tax Cuts and Jobs Act is no exception.

 To understand the new rules, it is worthwhile to review the current law.

Current Law

Generally, a corporate NOL may be carried back two years and carried forward twenty years to offset taxable income is such years.

New Law

The new law eliminates the two-year carryback, but does allow NOL’s to be carried forward indefinitely.  Also, the NOL deduction is limited to 80 percent of taxable income, determined without regard to the NOL deduction.  

The new provision applies to NOL’s arising in taxable years beginning after December 31, 2017.

Accordingly, NOL’s generated in tax years beginning before January 1, 2018 will be treated in accordance with the above described “current law” with subsequently generated NOL’s following the provision of the new law.

Anyone who has wrestled with corporate NOL carrybacks and carryforwards in recent years will remember that AMT was always a consideration because of its 90 percent limitation.  The Tax Cuts and Jobs Act repeals corporate AMT for taxable years beginning after December 31, 2017. 

The new corporate NOL provisions appear to be fairly simple and straightforward.  However, history teaches us that Congress loves to change this part of the Internal Revenue Code.