SECTION 2. BACKGROUND

.01 TCJA Modifications of NOL De- duction and NOL Carryback Rules —(1) Enactment of 80-percent Limitation . Section 13302(a)(1) of Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA), amended § 172(a)(2) of the Code to provide that, with regard to NOLs arising in a taxable year beginning after December 31, 2017, the amount allowed as a “net operating loss deduction,” as defined in § 172(a) (NOL deduction), cannot exceed 80 percent of the taxable income of the taxpayer computed without regard to any NOL deduction (80-percent limitation). The 80-percent limitation does not apply in the case of an insurance company, as defined in § 816(a), other than a life insurance company. See § 172(f) (as added by § 13302(d)(2) of the TCJA).

(2) Two-year carryback period for farming losses . Section 13302(b) of the

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TCJA amended § 172(b)(1) of the Code to generally eliminate NOL carrybacks. However, § 13302(c)(1) of the TCJA amended § 172(b)(1) to provide a twoyear carryback period for the portion of an NOL that is a farming loss. Section 13302(c)(1) of the TCJA further amended § 172(b)(1) to provide that taxpayers entitled to this two-year carryback period may make an irrevocable election to waive it. See § 172(b)(1)(B)(iv). In addition, § 172(b)(3), which predates the TCJA amendments, separately provides that any taxpayer entitled to an NOL carryback period under § 172(b)(1) may irrevocably elect to relinquish the entire carryback period with respect to that NOL for any taxable year. The TCJA changes relating to loss carrybacks apply to NOLs arising in taxable years beginning after December 31, 2017. See § 13302(e)(2) of the TCJA, as amended by § 2303(c)(1) of the CARES Act.

.02 CARES Act Amendments to TCJA 80-percent Limitation and NOL Carry- back Rules —(1) Temporary suspension of 80-percent limitation . Section 2303(a) of the CARES Act amended § 172(a) of the Code to provide that the 80-percent limitation applies only to NOLs arising in taxable years beginning after December 31, 2017, that are deducted in taxable years beginning after December 31, 2020.

(2) Five-year carryback periods . Section 2303(b) of the CARES Act amended § 172(b)(1) of the Code to provide a fiveyear carryback period for any NOL arising in a taxable year beginning after December 31, 2017 and before January 1, 2021. See § 172(b)(1)(D). Section 172(b)(1)(D) (i)(II), as added by section 2303(b) of the CARES Act, provides, in part, that the two-year carryback period provided by § 172(b)(1)(B) for farming losses does not apply to any such NOL.

.03 CTRA 2020 Amendments to CARES Act. Section 281(a) of the CTRA 2020 amended § 2303 of the CARES Act by adding a new subsection (e), which took effect as if originally included in that CARES Act section. See § 281(b) of the CTRA 2020. New § 2303(e) of the CARES Act contains the following provisions:

(1) Election to disregard the CARES Act Amendments . Section 2303(e)(1) of the CARES Act provides that a taxpayer

with a Farming Loss NOL for any taxable year beginning in 2018, 2019, or 2020, may make an election to disregard the amendments made by section 2303(a) and (b) of the CARES Act (that is, the CARES Act Amendments).

(2) Consequences of Election . If a taxpayer makes the election under § 2303(e) (1), the following consequences will result:

(a) Application of 80-percent limita- tion . The 80-percent limitation will apply to determine the NOL deduction for each taxable year beginning in 2018, 2019, or 2020 to the extent the deduction is attributable to NOLs arising in taxable years beginning after December 31, 2017. The 80-percent limitation will not apply to determine the NOL deduction for any taxable year beginning before 2018.

(b) Application of modified taxable in- come rules . Section 172(b)(2)(C) of the Code, as added by the TCJA and effective prior to enactment of the CARES Act, provides a modified taxable income rule to account for the 80-percent limitation. This rule will apply with regard to each taxable year beginning in 2018, 2019, or 2020. (c) NOL carryback period . The NOL carryback period will be determined under § 172(b) of the Code, as amended by the TCJA and effective prior to enactment of the CARES Act, for any NOL arising in any taxable year beginning in 2018, 2019, or 2020. For example, if a taxpayer with a Farming Loss NOL in 2018 makes the election under § 2303(e)(1), only the portion of the Farming Loss NOL that consists of a farming loss can be carried back two taxable years. In addition, for taxpayers other than insurance companies, as defined in section 816(a) of the Code, that are not life insurance companies, no portion of any NOL that does not constitute a farming loss can be carried back to any taxable year beginning before January 1, 2018. (3) Making the Election —(a) Over- view . Section 2303(e)(1)(B)(i) of the CARES Act provides that, except in the case of a deemed election described in 3.02(3)(b) of this revenue procedure, an election to disregard the CARES Act amendments (Affirmative Election) under § 2303(e)(1) must be made in the manner prescribed by the Secretary. Once made,

an election under § 2303(e)(1) is irrevocable. Section 2303(e)(1)(B)(ii)(I) of the CARES Act generally provides that an Affirmative Election must be made by the due date, including extensions of time, for filing the taxpayer’s Federal income tax return for the taxpayer’s first taxable year ending after December 27, 2020.

(b) Deemed election . In the case of any taxpayer with a Farming Loss NOL that files a Federal income tax return before December 27, 2020, that disregards the CARES Act Amendments, the taxpayer is treated as having made a deemed election (Deemed Election) under § 2303(e)(1) unless the taxpayer amends such return to reflect such amendments by the due date (including extensions of time) for filing the taxpayer’s Federal income tax return for the first taxable year ending after December 27, 2020.

(4) Revocation of election to waive two- year carryback period . Section 2303(e) (2) of the CARES Act provides taxpayers with the ability to revoke an election made under § 172(b)(1)(B)(iv) or § 172(b)(3) of the Code to waive the two-year carryback period if the election—

(i) was made by the taxpayer before December 27, 2020; and

(ii) relates to the two-year carryback period for the portion of any Farming Loss NOL that is a farming loss arising in taxable years beginning in 2018 or 2019.