This is the second in a series of Tax News Highlights articles covering international taxes and what companies need to consider during and after the current global pandemic.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted on March 27 provides economic relief and helps generate liquidity for companies negatively affected by the COVID-19 pandemic. A key provision of the act involves Section 172(b)(1) net operating loss (NOL) carrybacks and carryforwards. The CARES Act modifies the NOL rule to allow for a five-year carryback period for NOLs incurred for tax years beginning after Dec. 31, 2017, but before Jan. 1, 2021.
This change potentially allows taxpayers to use NOLs generated in years with a 21% tax rate to offset taxable income from years that had a 35% tax rate. The interaction of these NOL carrybacks with provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) – such as the Section 965 transition tax, Section 250 foreign derived intangible income (FDII) deduction, global intangible low-taxed income (GILTI) calculation, and Section 59(A) base erosion and anti-abuse tax (BEAT) – should be carefully analyzed to avoid unintended consequences. Taxpayers with post-2017 NOLs can waive NOL carrybacks entirely or elect to waive the carryback solely with respect to amounts that would go back to a year with a Section 965 inclusion amount.