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CARES Act – Relief for Businesses

Lori D. Givens

March 30, 2020

Friday March 27, 2020 the President signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act.  The bill included key changes for business taxpayers as outlined below.

Net Operating Loss Changes, corporate taxpayers, ACT section 2303:

Law prior to CARES Act

Carryback of operating losses were not allowed and could only be carried forward, current year limited to 80% of taxable income.

Law after CARES Act

Net operating losses originating during tax years December 31, 2018- December 31, 2021 can be carried back to each of the 5-tax years preceding the loss. The remainder will carryforward.

Net Operating Loss on non-corporate taxpayers, ACT section 2304:

Law prior to CARES Act

Business losses exceeding $250,000 for single taxpayers and $500,000 for joint taxpayers generated after tax years December 31, 2017 and ending before January 1, 2026 were subject to excess business loss limitations and not eligible for net operating loss carryback.

Law after CARES Act

Temporary modification – excess business losses will not be limited for tax years after December 31, 2017 and before January 1, 2021 – a 5-year carryback is permitted.

Corporate minimum tax credit, ACT section 2305:

Law prior to CARES Act

Alternative minimum tax for corporate taxpayers was repealed after tax year ending December 31, 2017.  Corporations could claim the alternative minimum tax credit carryforward up to tax year 2020 with limitations, and fully refundable in tax year 2021.

Law after CARES Act

Acceleration of the tax credit, 2018 limitations, and fully refundable in tax year 2019.

Deductibility of Interest Expense temporarily increased, ACT section 2306:

Law prior to CARES Act

Certain taxpayers with business interest expense limited to 30% of adjusted taxable income, excess business interest expense is disallowed and carried forward.  Interest carried forward is offset by income from the same entity in future years.

Law after Cares Act

  • Temporary change, retrospectively for C and S corporations, limitation increased from 30% to 50% of adjusted taxable income for tax years beginning in 2019 and 2020. Increased limitations apply in 2020 only for Partnerships, with the same carryover provisions as the previous law.
  • Special rule for 2019 Partnerships that did not elect out of excess business interest rules, the increased limitations will not apply.  Instead if excess business interest is carried forward from 2019 to 2020, the partner will not be subject to any limitations in 2020 on this amount.
    • Election out of the increased limitation can be made for tax years beginning 2020 for Partnerships and may only be revoked with IRS consent.
  • Beginning in tax year 2020, taxpayers can elect to use 2019 adjusted taxable income to calculate 2020 business interest expense limitations.  Election cannot be made at the partner level and must be made by the partnership.

To review other provisions from the CARES Act, click here.

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