Details of Public Law 116-136, section 2303 , Modifications for Net Operating Losses

The provision suspending application of the 80% taxable income limitation applies to taxable years beginning after 12/31/2017, and to taxable years beginning on or before 12/31/2017, to which NOL arising in taxable years beginning after 12/31/2017, are carried.

The provision modifying the rules relating to carrybacks applies to NOLs arising in taxable years beginning after 12/31/2017, and taxable years beginning before, on, or after such date to which such NOLs are carried.

The technical amendments made by the provision are effective as if included in section 13302 of PL 115-97.

This provision suspended the application of the 80% taxable income limitation for taxable years beginning after 12/31/2017, and before 1/1/2021. The 80% taxable income limitation continues to apply in the case of any taxable year beginning after 12/31/2020. The 80% taxable income limitation was also eliminated for net operating losses (NOLs) arising in taxable years beginning after 12/31/2017, and carried to such a taxable year.

The CARES Act also modified the rules regarding carrybacks for NOLs arising in 2018, 2019, and 2020. Specifically, any NOL arising in a taxable year beginning after 12/31/2017, and before 1/1/2021, may be carried back to the 5 taxable years preceding the taxable year of such loss.

In general, California allows a taxpayer to calculate an NOL in accordance with federal rules, but has not conformed to the federal changes that apply to taxable years beginning after 12/31/2017 because California conforms to the Internal Revenue Code as of 1/1/2015.

NOLs attributable to taxable years beginning on or after 1/1/2008, may be carried forward 20 years. For NOLs attributable to taxable years beginning before 1/1/2013, and after 12/31/2018, NOL carrybacks are unavailable. California conforms to the federal NOL carryback rules for NOLs attributable to taxable years beginning on or after 1/1/2013, and before 1/1/2019, with modifications.

AB 85 was chaptered on 6/29/2020, and it includes provisions to suspend the use of NOL deductions. The suspension does not apply to taxpayers with a net business income or modified adjusted gross income of less than $1 million under the PITL or for taxpayers with income subject to tax under the CTL of less than $1 million for taxable years 2020, 2021, and 2022. This provision also extends the carryover period for NOL deductions disallowed under this provision.

Therefore, the 80-percent taxable income limitation is not applicable in California and any NOL arising in a taxable year beginning after 12/31/2017, and before 1/1/2021, may not be carried back.