Consolidated group NOL rules are finalized

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Consolidated group NOL rules are finalized

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 CARES Act amendments delay the application of the TCJA’s NOL amendment until Jan. 1, 2021. The CARES Act amendments also permit a five-year carryback for NOLs, including farming losses and NOLs of nonlife insurance companies, for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2021.

The final 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.

The final 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.

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. Sec. 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.

 Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.

Research & References of Consolidated group NOL rules are finalized|A&C Accounting And Tax Services
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