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Can a C corporation Carryback NOL’s?

When it comes to NOL’s one of the most frequently asked questions is “can a C corporation carryback NOL’s?” Let’s assess.

Net operating losses will result when a company’s total deductions are in excess of their total operating income in a reported tax year. Taxpayer’s will be able to use operating losses to offset taxable income to the extent of certain limitations. You should be familiar with the existing limitations for net operating losses for CPA exam purposes. 

Per the literature published by the internal revenue code (IRC), net operating losses that occur in tax years after December 31st, 2020, may not be carried back and can only be carried forward to offset future taxable income up to 80% of the taxpayer’s reported taxable income. However, net operating losses that occur between December 31st, 2017 – January 1st, 2021, will be able to carry losses back up to five years and forward indefinitely 

When determining corporation’s deductible net operating losses there are certain highlights that should be emphasized: 

  • Net operating losses can only be carried forward post 2018. 
  • Net operating losses can only offset corporate income to the extent of 80% of their net income in the given tax year. Excess losses can be carried forward for an unlimited amount of time. 
  • Charitable contributions will not be deductible for purposes of calculating net operating losses. 
  • Net operating loss deductions for a given NOL carryover from previous years will not be included when determining the net operating loss for the given tax year. 

For CPA Exam purposes, understanding the differences the rule changes for these dates will be key to your success.

Generally, C corporations are not allowed to carryback net operating losses (NOL’s) post 2018. C Corporations are allowed to carryforward losses indefinitely, but again, they cannot carryback those losses to prior periods. Prior 2018, Corporations were allowed to carry back 2 years and forward 20 years.

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