July 10 2020

COVID-19 Pandemic: Regulations Issued on Net Operating Losses of Consolidated Corporate Groups

Source: IBFD Tax Research Platform News

The US Treasury Department and Internal Revenue Service (IRS) have issued proposed and temporary regulations that affect corporations filing consolidated returns. The two sets of regulations respond in particular to changes made under the Tax Cuts and Jobs Act (TCJA) and the CARES Act regarding the carry forward and carry back of net operating losses (NOLs).

The IRS announced the issuance of the proposed and temporary regulations in News Release IR-2020-138. The regulations were issued under section 1502 of the Internal Revenue Code and address certain aspects of those NOL rules that are relevant to consolidated groups, in particular groups that include certain types of insurance companies.

The TCJA revised the NOL rules to eliminate the carryback of NOLs and limit the use of NOL carryforwards so that such NOLs may offset only 80% of taxable income in a carry-forward year. The TCJA applies special rules to non-life insurance companies and farming losses. The CARES Act delayed the effective date of the TCJA provisions until 1 January 2021 and permits a five-year carryback for NOLs, including NOLs of non-life insurance companies and farming losses, and also allows an option to waive NOL carrybacks.

The proposed regulations include guidance for consolidated corporate groups on the application of the 80% limitation. The temporary regulations include an allowance for certain acquiring consolidated groups to make an election to waive all or a portion of the pre-acquisition portion of the extended carryback period for certain losses attributable to certain new members acquired by consolidated groups.