IRS issues final regulations on consolidated group NOLs

By Sally P. Schreiber, J.D.

The IRS finalized guidance for consolidated groups on the treatment of net operating losses (NOLs) after recent statutory changes (T.D. 9927). The final regulations adopted proposed regulations issued in July (REG-125716-18), except for Prop. Regs. Secs. 1.1502-21(b)(3)(ii)(C) and (D), with a few clarifications in response to comments. In the preamble, the IRS said it intended to finalize Prop. Regs. Secs. 1.1502-21(b)(3)(ii)(C) and (D) later and asked for further comments on them.

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 the TCJA amendments, an NOL deduction for tax years beginning 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 CARES Act amendments delay the application of the TCJA's NOL amendment until Jan. 1, 2021.

Regs. Secs. 1.1502-1(k), 1.1502-21(a), 1.1502-21(b)(1), 1.1502-21(b)(2)(iv), 1.1502-21(c)(1)(i)(E), 1.1502-47, and 1.1503(d)-8(b)(8) apply to tax years beginning after Dec. 31, 2020. Taxpayers may choose to apply Regs. Secs. 1.1502-1(k) and 1.1502-47 to tax years beginning on or before Dec. 31, 2020, but for Regs. Sec. 1.1502-47, the corporation must apply those rules consistently and entirely.

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