The CARES Act: Income Tax Provisions for Businesses

Coronavirus: Tax Advisory

Among its many provisions designed to stimulate the economy and provide relief to businesses, the CARES Act includes several tax provisions designed to do so through the US Internal Revenue Code. These tax provisions relate to industry-specific excise taxes, payroll taxes, income taxes and credits, charitable organizations, and tax-deferred retirement savings.

This Advisory focuses on the following income tax provisions in the CARES Act that impact businesses:

  1. Businesses now generally can carry back a net operating loss (NOL) generated in 2018, 2019, or 2020 for up to five years. In addition, the annual limitation on the deduction of an NOL of 80 percent of taxable income is suspended until 2021. The CARES Act also suspends the limitation for noncorporate taxpayers on the deductibility of excess business losses until 2021.
  2. The limitation on interest deduction, which otherwise permits businesses to deduct interest expense only up to 30 percent of adjusted taxable income, has been generally increased to 50 percent for 2019 and 2020.
  3. Tax credits related to the repealed corporate alternative minimum tax (AMT) now can be refunded entirely in either 2018 or 2019, instead of over four years through 2021.
  4. A technical error in the Tax Cuts & Jobs Act of 2017 (TCJA) has been fixed, making the cost of real property improvements eligible for immediate expensing under the “bonus” depreciation rules beginning in 2018.

We expect that most businesses will find these changes beneficial. However, as discussed in more detail below, there may be unintended tax consequences of carrying back NOLs. Legal questions also could arise from carrying back NOLs of recently acquired corporations.

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