United Western Bancorp Inc (fka UWBKQ)

[LGL8054]

NEW NOL TAX LIMITS

http://rsmus.com/what-we-do/services/tax/washington-national-tax/net-operating-losses-after-the-tax-cuts-and-jobs-act.html


Net operating losses (NOLs) after the Tax Cuts and Jobs Act
Understanding the limitation on future use and carryback of NOLs
TAX ALERT | January 02, 2018

The newly enacted Tax Cuts and Jobs Acts (the “Act”) provides sweeping changes to corporate tax law, including major changes to the utilization of net operating losses (NOLs) for corporate taxpayers. For NOLs, the carryover and carryback rules change and a new limitation on NOL utilization is added.

Under prior section 172, NOLs were generally eligible for a two year carryback and twenty year carryforward. Further, NOL carryovers and carrybacks could fully offset taxable income of the taxpayer if not otherwise limited under the Internal Revenue Code (e.g., section 382 limitations). Both of those rules have now changed. Application of these changes may differ from what was expected based upon the plain language of the amended statute.
Carryover and carryback provisions

The amendments to section 172 disallow the carryback of NOLs but allow for the indefinite carryforward of those NOLs. Pursuant to section 172(e)(2) of the statute, the amended carryback and carryover rules apply to any NOL arising in a taxable year ending after Dec. 31, 2017.

The disallowance of NOL carrybacks is not surprising and had been a part of both the House and Senate plans. Its effective date may be surprising, however, particularly for fiscal year corporations projecting a current NOL in a tax year ending after Dec.31, 2017. For example, under a plain reading of the statute, a corporate taxpayer projecting an NOL for a fiscal year ending Mar. 31, 2018 appears subject to the NOL carryback disallowance because the tax year ends after Dec. 31, 2017.

Initially, the new NOL carryback rule effective date may appear confusing for a few reasons. First, there are two separate effective date provisions for the new NOL rules (see separate effective date for NOL limitation below). Having two effective dates for such closely related subject matter is somewhat unusual. Second, the effective date provisions of the bill originally passed by the House of Representatives were different than the enacted effective dates. Third, the Act’s legislative history contains an inaccurate description of the effective dates in the bill originally passed by the Senate. Any confusion should be dispelled by the Act’s clear effective date, which plainly states that the law is effective for NOLs arising in tax years ending after Dec. 31, 2017. Barring a technical correction, if in fact a correction is appropriate, corporate taxpayers should follow the statute as enacted.
NOL income limitation

In addition to the carryover and carryback changes, the Act also introduces a limitation on the amount of NOLs that a corporation may deduct in a single tax year under section 172(a) equal to the lesser of the available NOL carryover or 80 percent of a taxpayer’s pre-NOL deduction taxable income (the “80-percent limitation”). Interestingly, this limitation applies only to losses arising in tax years that begin after Dec. 31, 2017 based upon section 172(e)(1) of the amended statute. As a result, taxpayers with historic NOLs (or fiscal year taxpayers projecting a current NOL) may see a silver lining around the cloud of this limitation, because for NOLs generated in tax years ending before Jan. 1, 2018, the historic rules appear applicable.