Net Operating Loss Reform Act
Section 1. Adopt the Net Operating Loss Provisions of the Internal Revenue Code as amended by the Coronavirus Aid, Relief and Economic Security (CARES) Act in Response to COVID-19 Pandemic.
[INSERT STATE] is to adopt or otherwise conform to the federal CARES Act’s Temporary Repeal of Taxable Income Limitation contained in I.R.C. § 172(a)(2) in order to suspend the 80% income cap on net operating loss carryforwards for losses that occur in taxable years beginning before January 1, 2021.
[INSERT STATE] is to adopt or otherwise conform to the Modification of Rules Relating to Carrybacks contained in I.R.C. § 172(b)(1)(D) in order to provide five years of net operating loss carrybacks for losses arising in a taxable year beginning after December 31, 2017, and before January 1, 2021.
Explanatory Note: The purpose of this section is for states that have static conformity to the Internal Revenue Code to adopt the temporary treatment of net operating losses contained in Sections 2303 and 2304 of the Coronavirus Aid, Relief and Economic Security (CARES) Act.
In addition, states should provide a more comprehensive, permanent set of net operating loss provisions by allowing businesses to carry forward losses for at least 20 years without an income limitation cap and by providing at least two years of net operating loss carrybacks. These changes should be made effective for taxable years beginning after December 31, 2020.
Adopted by the Tax and Fiscal Policy Task Force on July 16, 2020
Approved by the Board of Directors on August 9, 2020