FAQs on Carrybacks of Net Operating Losses for Certain Exempt Organizations

The IRS issued new FAQs on carrybacks of net operating losses (NOLs) for exempt organizations. Under the CARES Act, any net operating loss arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, may be carried to the five taxable years preceding the taxable year of such loss, which includes taxable years prior to the enactment of section 512(a)(6).

tax deadlineQ1. In determining the UBTI of an exempt organization with more than one unrelated trade or business in a taxable year beginning after December 31, 2017, are CARES Act NOLs required to be siloed so that each unrelated trade or business calculates its NOL separately?

A1. Yes. In determining the UBTI in taxable years beginning after December 31, 2017, section 512(a)(6) requires an exempt organization with more than one unrelated trade or business to silo NOLs arising in taxable years beginning after December 31, 2017, so that each trade or business calculates its NOL separately. CARES Act NOLs arise in taxable years beginning after December 31, 2017, and therefore must be siloed.

Q2. Can an exempt organization subject to section 512(a)(6), and that has CARES Act NOLs, carry back and deduct those NOLs against the aggregate UBTI in a taxable year beginning before January 1, 2018?

A2. Yes. An exempt organization subject to section 512(a)(6) can deduct CARES Act NOLs against the aggregate UBTI in a taxable year beginning before January 1, 2018, when carrying the NOL back to such taxable year because section 512(a)(6) does not apply to such taxable year. Also, an exempt organization may carry back CARES Act NOLs attributable to an unrelated trade or business, even if the exempt organization would not have had a CARES Act NOL if the deduction in the relevant taxable year were calculated on an aggregate basis.

Q3. Can an exempt organization deduct CARES Act NOLs against aggregate UBTI in taxable years beginning after December 31, 2017, if any CARES Act NOLs remain after being carried back to taxable years beginning before January 1, 2018?

A3. No. The special rule in section 13702(b)(2) of the TCJA that allows NOLs arising in taxable years beginning before January 1, 2018, to be deducted against aggregate UBTI does not apply to CARES Act NOLs because those NOLs arise in taxable years beginning after December 31, 2017. Accordingly, when deducting CARES Act NOLs against UBTI in taxable years beginning after December 31, 2017, the CARES Act NOLs must be siloed consistent with section 512(a)(6).

Read the IRS FAQs here.

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