Among other tax changes, the CARES Act loosened rules governing net operating loss deductions (NOLs). These modifications provided much-needed relief for businesses, and there is an opportunity to build upon them in upcoming “Phase 4” economic relief legislation.
Contrary to some of the rhetoric surrounding the changes to NOL deductions in the CARES Act, the provisions are a step forward for providing firms liquidity in a time of crisis and constrained cash flow. NOL deductions are a key component of a sound tax code.
While arbitrage opportunities should be minimized, policymakers should explore ways for firms to leverage their tax assets, including NOL deductions, in the next round of economic relief legislation. The goal is not to provide a windfall to firms nor to cut long-run taxes, but to ensure firms without past profits can survive through an unprecedented economic crisis. Reforming NOL rules is a smart way to do so in combination with other forms of business relief.
For more information please visit: https://taxfoundation.org/phase-4-relief-legislation-net-operating-loss-cares-act/