New tax relief for businesses with losses and loans

Congress passed the CARES Act in late March, providing for nearly $2T in COVID-19 relief. In the past month, businesses and their advisors have scrambled to apply for the Paycheck Protection Program and emergency financing vehicles provided in the new law. With much of the focus on PPP, some businesses may not be aware that the CARES Act also provides liquidity support in the form of new tax benefits.

The CARES Act makes temporary changes to how net operating losses and business interest expenses are treated for federal income tax purposes. A net operating loss (NOL) generally arises when a business has more deductions in a tax year than income in that year.  Business interest expenses are typically interest payments that a business has made during the tax year on outstanding loans and other obligations.

In 2017, the Tax Cuts and Jobs Act (TCJA) limited how businesses can claim deductions for NOLs and business interest expenses. The CARES Act temporarily loosens some of these limitations and, for NOLs, allows the affected businesses to request a tentative refund now rather than waiting until tax returns are due next year to get cash in hand.

More information on the relief and how to claim it is available from the IRS:

  • Rev. Proc. 2020-22 – guidance for real property and farming businesses implementing the changes to business interest deductions
  • Rev. Proc. 2020-24 – guidance for taxpayers with NOLs that will be carried back under the CARES Act
  • Temporary procedures for faxing Forms 1139 and 1045 to claim a tentative refund for NOL deductions

Additional guidance is expected throughout the coming weeks and months. The new rules are complex and can impact numerous calculations on tax returns for previous and future years as well as state tax liability. Working with an experienced tax professional can ensure your small business is able to fully benefit from the new relief.

For information on how to find a tax and accounting advisor, click here.

Additional resources

This page was created by Thomson Reuters legal and tax experts to assist your small business. For further in-depth coverage, access free COVID materials via the following Thomson Reuters platforms.

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