The IRS issued proposed and temporary regulations (REG-125716-18 and T.D. 9900) to provide guidance for consolidated groups on the treatment of net operating losses (NOLs) after recent statutory changes.
Both the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, amended the rules for NOLs. As a result of those amendments, an NOL deduction for years after Dec. 31, 2020, is the sum of:
- The 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 proposed regulations provide rules on how the 80% limitation on post-2017 NOLs applies to consolidated groups. They also provide guidance regarding the application of the NOL carryback provisions following enactment of the TCJA and the CARES Act, and withdraw and repropose certain sections of proposed regulations issued under Sec. 1502 that relate to the absorption of NOL carrybacks and carryovers. In addition, the proposed regulations would remove obsolete provisions from the rules for consolidated groups that contain both life insurance companies and nonlife insurance companies.
The temporary regulations apply to consolidated groups that acquire new members that were members of another consolidated group. Because the CARES Act allows certain NOLs to be carried back five years, the temporary regulations allow acquiring consolidated groups to elect in a year after the year of acquisition to waive all or a portion of the pre-acquisition portion of the extended carryback period for certain losses attributable to the acquired members.
The temporary regulations were effective July 2, 2020.