Section 2303 of the CARES Act allows a five-year carryback for net operating losses (NOLs) arising in the 2018, 2019, and 2020 tax years. That section of the act also temporarily repeals the 80% of income limitation (preventing an NOL carried to another tax year from offsetting more than 80% of taxable income) for tax years beginning before 2021, allowing companies to fully offset taxable income when utilizing the new carryback period provided in the act.
However, if the NOL is carried back to a year in which the TCJA transition tax applied, then the taxpayer will be treated as having made an election to not apply the NOL against the repatriation income inclusion under Section 965. Generally, this can be good news for taxpayers because Section 965 income was taxed at favorable rates, thus allowing taxpayers to use the NOL carryback against highly taxed income.
In addition, §2303 of the CARES Act corrects a drafting error in the Tax Cuts and Jobs Act (TCJA) regarding carrybacks, changing the original limitation on carrybacks to NOLs arising in tax years beginning after December 31, 2017, rather than to those arising in years ending after that date.
The CARES Act also provides a 120-day window from enactment in which taxpayers with an NOL for a tax year beginning before December 31, 2017, but ending after that date would be permitted to apply for a tentative carryback refund with respect to that NOL.