🎯NOL Corporations: 5 MCQs

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Yichun Leppala 31 December 2023

I’m having trouble understand Q1 (Bear and Carl). The lesser of 65% of dividend received or 65% of taxable income can be deducted, but then what does it mean by ” The limitation does not apply if the full DRD creates a taxable loss.”?

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1. Deleted User 3 January 2024
  
  Hello Yichun,
  
  The phrase “The limitation does not apply if the full DRD creates a taxable loss” means that if applying the full dividends received deduction (DRD) to the corporation’s taxable income would result in a taxable loss, the usual limitations on the DRD do not come into play.
  
  In the context of the DRD, there are often limitations based on a percentage of taxable income. However, if applying the full DRD would bring the taxable income below zero, indicating a taxable loss, the usual limitations are not enforced. In other words, the corporation is allowed to take the full DRD deduction even if it results in a negative taxable income.
  
  This provision is designed to ensure that corporations can fully benefit from the DRD without being restricted by taxable income limitations when the application of the full deduction would lead to a net loss. It provides flexibility in recognizing the economic reality that the corporation may not have sufficient taxable income to fully utilize the deduction in certain situations.
  
  Farhat Lectures support team
  
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Evgeniya Rudneva 18 August 2024

i believe 5 years is incorrect in the answer explanation – a 2020 NOL can be carried back five years, rather than three years. NOLs that arise in tax years beginning after December 31, 2017, and before January 1, 2021, can be carried back five years and carried forward indefinitely.

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1. Maroun, CPA 19 August 2024
  
  Hello Evgeniya,
  
  The CARES Act introduced a special provision allowing for a five-year carryback of net operating losses (NOLs) for tax years beginning in 2018, 2019, and 2020. You can find more details on this on the IRS website here:
  https://www.irs.gov/newsroom/net-operating-losses
  https://www.irs.gov/newsroom/frequently-asked-questions-about-carrybacks-of-nols-for-taxpayers-who-have-had-section-965-inclusions
  
  I’m not certain about the concern with the explanation provided. Could you please clarify what seems to be incorrect or unclear? I’d be happy to assist further.
  
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Ellie Jeon 26 March 2025

Isn’t NOL from 2020 can be used 100% for carryforward?

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1. Maroun, CPA 29 March 2025
  
  Hello Ellie,
  
  Under the CARES Act, Net Operating Losses (NOLs) from 2018, 2019, and 2020 can be carried back up to five years or carried forward indefinitely. When carried forward to offset income in 2021 or later, these NOLs are subject to an 80% taxable income limitation.
  
  This means that while you can use 2020 NOLs to offset taxable income in future years, the deduction is limited to 80% of your taxable income in those years.
  
  However, if you choose to carry back the 2020 NOL to offset income from 2015 through 2019, you can potentially obtain refunds for taxes paid in those years.
  
  I hope this helps!
  
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RAVI VERNEKAR 20 April 2025

Only after 2021 onwards it is limited to 80% of taxable income right. During 2020 it must be 100% of the taxable income . Please clarify

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1. Maroun, CPA 23 April 2025
  
  Hello Ravi,
  
  In order to better assist you, could you please let us know which question you are referring to?
  
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🎯NOL Corporations: 5 MCQs

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