Advocates defending the CARES Act NOL-Loss Limitation relief had a busy week. First, more than 75 national and local trade groups signed a letter in favor of keeping the relief intact. The broad number of signatories on the letter, drafted by our friends at the National Mining Association, makes clear arguments that the provision was “snuck” into the CARES Act or would only benefit a “narrow” sliver of industries are wholly meritless. As the letter states:
The ability to carryback NOLs is a critical component of a well-operating income tax system. Indeed, NOL carryback provisions have long been bipartisan tools utilized by lawmakers to provide liquidity and are routinely expanded during times of economic dislocation. As the non-partisan Joint Committee on Taxation has noted (see JCX-12R-20), the “provision allows taxpayers to use NOLs to a greater extent to offset taxable income in prior or future years in order to provide taxpayers with liquidity in the form of tax refunds and reduced current and future tax liability.” The provision suspending limitations on excess business losses for non-corporate taxpayers offers similar relief. As Chairman Grassley recently noted, the “key was for businesses to keep cash on hand, if they hadn’t already filed, or get refunds to give them liquidity to keep the doors open, machinery running, and most importantly, employees paid, to the greatest extent possible.”
Next, former CBO Director Doug Holtz-Eakin weighed in support of keeping the relief in a piece entitled “No U-turns on Pandemic Tax Policy.” As Doug argues:
Loss carrybacks and carryforwards are not gimmicks invented in this crisis; they are longstanding features of the tax system. When businesses have losses in some years and profits in other years, they would be overtaxed if they were not permitted to reduce their income with those losses. This was recognized by the Supreme Court in 1957: “Those provisions were enacted to ameliorate the unduly drastic consequences of taxing income strictly on an annual basis. They were designed to permit a taxpayer to set off its lean years against its lush years, and to strike something like an average taxable income computed over a period longer than one year.”
And finally, Tax Notes included a great letter to the editor from Harry Gutman, the former chief of staff of the Joint Committee on Taxation, making a number of key points, including the fact that the JCT doesn’t even consider NOLs to be a tax expenditure because of their unique role in ensuring businesses pay no more tax than their long-term income would necessitate:
The Joint Committee staff assumes that normal income tax law would provide for the carryback and carryforward of net operating losses. The staff also assumes that the general limits on the number of years that such losses may be carried back or forward were chosen for reasons of administrative convenience and compliance concerns, and may be assumed to represent normal income tax law (Joint Committee on Taxation, “Estimates of Federal Tax Expenditures for Fiscal Years 2019-2013,” JCX-55-19, at 8 (Dec. 18, 2019)).
When Congress eliminated NOLs in 2017, many tax experts on both sides of the aisle worried that this was a mistake that we would regret the next time the economy stopped growing. Well, the economy has stopped growing, we immediately regretted preventing businesses from carrying back the losses they are experiencing, and we did something about it. It was the right thing to do, and it should be retained.