Tax relief measures for businesses in the ‘Coronavirus Aid, Relief, and Economic Security Act’ (the CARES Act) include a five-year net operating loss (NOL) carryback (including a related technical correction to the 2017 ‘Tax Cuts and Jobs Act’ (the TCJA)) and a change in Section 163(j) interest deduction limitations. These measures give businesses greater ability and flexibility to use NOLs and interest deductions to offset their taxable income, providing them with liquidity and a reduced cost of capital as they grapple with the economic effects of the pandemic. While these measures generally are welcome to expand the options available to taxpayers to access additional ‘internal’ funding, the interplay of these new provisions within the TCJA framework requires careful evaluation of their potential benefit and tax consequences.
The CARES Act amendments to Sections 172 and 163(j) should provide welcome relief to businesses impacted by the economic effects of the COVID-19 pandemic. However, taxpayers should assess their respective positions and consider whether any potential items (e.g., SRLY rules, purchase agreement mechanics, and BEAT) could adversely affect the intended benefit sought from the use of these provisions. Further, taxpayers should consider the timing of any cash benefit from the use of these provisions in light of their liquidity needs.