Question

As a result of the recent Cares Act, what has changed with regards to carry-backs or carry-forwards?

Answer 1

Under the existing Tax Cuts and Jobs act of 2017, carry back of business losses was not allowed but the Net Operating losses were allowed to be carried forward indefinitely with a limit of absorption being restricted to 80% of the taxable income.

However, with the impact of Covid 19 and its immoderate effects on the business, President Mr.Trump signed the CARES act to aid the businesses on March 27th, 2020.

Under this act , the following changes with respect to the NOL carryforward and carry backs apply:-

1.) Net Operating losses arising in tax years beginning after December 31, 2017 and before January 1, 2021 can be carried back to each of the five years preceding the tax year of such a loss.

2.) The Net Operating losses are still allowed to be carried forward indefinitely .

3.) The CARES act also temporarily removes the 80% limit on taxable income for taxable years upto December 31, 2020 , thereby allowing an NOL to fully offset a company's taxable income.

As a result of this, the eligible tax payers will now be eligible to claim a tax refund for the tax returns filed from previous years.

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