IRS Publishes Proposed Regs on Consolidated Net Operating Losses

IRS Publishes Proposed Regs on Consolidated Net Operating Losses

Internal Revenue Service

The IRS has published proposed regulations (REG-125716-18) that provide guidance implementing recent statutory amendments to section 172 and withdraw and repropose some prior proposed reg provisions regarding the absorption of consolidated net operating loss carryovers and carrybacks. The regs also update rules for consolidated groups that include both life insurance companies and other companies to reflect statutory changes. Comments and public hearing requests are due by August 31. The Tax Cuts and Jobs Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act made several changes to section 172. Those acts disallowed the carryback of NOLs generated in tax years beginning after 2020, except for farming losses and losses incurred by corporations that are insurance companies other than life insurance companies (nonlife insurance companies). They also limited the NOL deduction in tax years beginning after 2020 for NOLs generated in 2018 or later (post-2017 NOLs) to 80 percent of taxable income determined after the deduction for pre-2018 NOLs but before the deduction for post-2017 NOLs. That 80 percent limitation does not apply to nonlife insurance companies. The proposed regs implement the changes to section 172 to address issues regarding consolidated groups that were not expressly addressed in the acts. The proposed regs provide guidance for consolidated groups regarding the application of the 80 percent limitation. The regs provide special rules for consolidated groups that include at least one nonlife insurance company and rules applicable to losses arising in a separate return limitation year. The regs withdraw a rule in proposed regs (<a href="/lr/resolve//1r3d3">REG-101652-10</a>) issued in June 2015 regarding a recomputed percentage of a consolidated NOL attributable to a member and repropose substantially similar language. The regs also withdraw a provision in proposed regs (<a href="/lr/resolve//1r2rp">REG-140668-07</a>) issued in September 2012 and repropose, in modified form, a rule on the apportionment of consolidated NOLs that include farming losses arising in tax years beginning after December 31, 2020, or other special status losses. Under that reproposed rule, the portion of the consolidated NOL constituting a special status loss is apportioned to each group member separately from the remainder of the consolidated NOL, regardless of whether a member actually incurred the special status loss. The IRS has simultaneously released temporary regs (<a href="/lr/resolve//2cpdp">T.D. 9900</a>) to allow consolidated groups that acquire new members that were members of another consolidated group to elect to waive all or part of the pre-acquisition portion of an extended carryback period under section 172 for some losses attributable to the acquired members. The text of those regs also serves as part of the proposed regs. The proposed regs also update reg. section 1.1502-47 to reflect some changes to the insurance company rules made by the CARES Act, the TCJA, and prior tax legislation. The updates include removing or revising paragraphs because of repealed or revised statutory provisions, modifying terminology and statutory references to reflect current law, and removing paragraphs that contain obsolete transition rules or that are no longer applicable because the effective dates in the current life-nonlife regulations have passed. The regs are generally proposed to apply to tax years, or losses arising in tax years, beginning after the date final regs are published. However, taxpayers described in the preamble may rely on the proposed regs for the federal income tax treatment of some post-2017 NOLs.

Related IRS <a href="/lr/resolve//2cpdx">news release</a>.

The IRS has published proposed regulations (REG-125716-18) that provide guidance implementing recent statutory amendments to section 172 and withdraw and repropose some prior proposed reg provisions regarding the absorption of consolidated net operating loss carryovers and carrybacks.

The IRS has published proposed regulations (REG-125716-18) that provide guidance implementing recent statutory amendments to section 172 and withdraw and repropose some prior proposed reg provisions regarding the absorption of consolidated net operating loss carryovers and carrybacks. The regs also update rules for consolidated groups that include both life insurance companies and other companies to reflect statutory changes. Comments and public hearing requests are due by August 31. The Tax Cuts and Jobs Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act made several changes to section 172. Those acts disallowed the carryback of NOLs generated in tax years beginning after 2020, except for farming losses and losses incurred by corporations that are insurance companies other than life insurance companies (nonlife insurance companies). They also limited the NOL deduction in tax years beginning after 2020 for NOLs generated in 2018 or later (post-2017 NOLs) to 80 percent of taxable income determined after the deduction for pre-2018 NOLs but before the deduction for post-2017 NOLs. That 80 percent limitation does not apply to nonlife insurance companies. The proposed regs implement the changes to section 172 to address issues regarding consolidated groups that were not expressly addressed in the acts. The proposed regs provide guidance for consolidated groups regarding the application of the 80 percent limitation. The regs provide special rules for consolidated groups that include at least one nonlife insurance company and rules applicable to losses arising in a separate return limitation year. The regs withdraw a rule in proposed regs (REG-101652-10) issued in June 2015 regarding a recomputed percentage of a consolidated NOL attributable to a member and repropose substantially similar language. The regs also withdraw a provision in proposed regs (REG-140668-07) issued in September 2012 and repropose, in modified form, a rule on the apportionment of consolidated NOLs that include farming losses arising in tax years beginning after December 31, 2020, or other special status losses. Under that reproposed rule, the portion of the consolidated NOL constituting a special status loss is apportioned to each group member separately from the remainder of the consolidated NOL, regardless of whether a member actually incurred the special status loss. The IRS has simultaneously released temporary regs (T.D. 9900) to allow consolidated groups that acquire new members that were members of another consolidated group to elect to waive all or part of the pre-acquisition portion of an extended carryback period under section 172 for some losses attributable to the acquired members. The text of those regs also serves as part of the proposed regs. The proposed regs also update reg. section 1.1502-47 to reflect some changes to the insurance company rules made by the CARES Act, the TCJA, and prior tax legislation. The updates include removing or revising paragraphs because of repealed or revised statutory provisions, modifying terminology and statutory references to reflect current law, and removing paragraphs that contain obsolete transition rules or that are no longer applicable because the effective dates in the current life-nonlife regulations have passed. The regs are generally proposed to apply to tax years, or losses arising in tax years, beginning after the date final regs are published. However, taxpayers described in the preamble may rely on the proposed regs for the federal income tax treatment of some post-2017 NOLs.

Sec. 172 Net operating loss deduction

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IRS Publishes Proposed Regs on Consolidated Net Operating Losses