The current versions of the economic stimulus tax bills under consideration by the Senate Finance and the House Ways and Means Committees contain two (2) provisions that are likely to be of particular interest to and will directly impact most, if not all, of our bank and other financial institution clients. The provisions are (i) changes in the rules allowing for the carryback of a net operating loss (“NOL”) of up to five (5) years instead of the current carryback period of only two (2) years, and (ii) a repeal (with limited transitional protection) of the relief provided in Notice 2008-83 issued by the Internal Revenue Service (“IRS”) in the fall of 2008 that exempted certain losses on loans and foreclosure property incurred by banks from the NOL limitation rules applicable to built-in losses.
Increase in the Net Operating Carryback Period
The provisions of the Senate Finance and the House Ways and Means Committees’ bills increasing the NOL carryback period to two (2) to five (5) years are essentially identical. The increased carryback period only applies to NOLs arising in 2008 and 2009. In addition, the 90% limitation (or the 10% haircut required) on the use of NOL carrybacks when computing a corporation’s alternative minimum tax is suspended. For those banks or other financial institutions with NOLs in 2008 and 2009, the bill will provide three (3) additional years (i.e., 2003, 2004, and 2005) from which they can obtain a refund of federal income taxes paid.