Guidance on Net Operating Losses for Consolidated Groups

The IRS issued proposed and temporary regulations to provide guidance on the treatment of net operating losses (NOLs) for consolidated groups after recent statutory changes from the Tax Cuts and Jobs Act (TCJA) and CARES Act. An NOL deduction is the sum of:

  • net operating lossesThe total of NOLs arising before Jan. 1, 2018 (pre-2018 NOLs) that are carried to that year; plus
  • The lesser of:
    • The total of NOLs arising after Dec. 31, 2017; or
    • 80% of taxable income less pre-2018 NOLs (the 80% limitation).

The IRS has issued temporary regulations that permit consolidated groups (that acquire new members that were members of another consolidated group) to elect to waive all or part of the pre-acquisition portion of an extended carryback period under the Code Sec. 172 NOL rules for certain losses attributable to the acquired members. The temporary regulations are in response to the enactment of the CARES Act, which retroactively provided that an NOL arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, must be carried back to each of the five taxable years preceding the taxable year in which the NOL arises. The temporary regulations are effective July 2, 2020.

The IRS has also issued proposed regulations that would provide consolidated groups with guidance on the application of the 80% limitation on NOLs enacted as part of the TCJA and subsequently amended by the CARES Act. The proposed regulations would also provide consolidated groups with guidance on the application of the NOL carryback and carryover provisions.

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