$14B in NOL Tax Breaks to be Paid by IRS

Thanks to a hotly debated pandemic tax break, the Internal Revenue Service is approving corporations to receive $14 billion in tax refunds. So far the IRS has received over 41,000 applications from businesses who are taking advantage of the provision in the March 2020 pandemic relief bill; which allowed companies to apply business losses to years in which they were not profitable. The Government Accountability Office (GAO) estimates that 1,200 companies that took advantage of the provision received a refund of more than $1 million.

This tax break, which was included in the bipartisan CARES Act, has recently come under fire from Democrats; calling for it to be repealed due to it largely aiding corporations and wealthy investors. Republicans argue that this was done so that companies can easily liquidate during the pandemic.

This is one of many updates to be rolled out of the economic relief bill that was passed more than a year ago. In its regular report to Congress, the GAO says that programs, such as the Paycheck Protection Program and Economic Injury Disaster Loan, are still suffering from fraud. The GAO also says that these programs need additional protection to help prevent improper disbursal of funds. They also say that states should provide more data to help with recouping billions in fraudulent unemployment compensations that were paid.

Although the IRS has just started issuing refunds to companies claiming the pandemic relief, there are still many more applications. Some were filed on paper, getting caught up in a mail backlog, or are tied to revised tax returns that have not been processed yet. The congressional Joint Committee on Taxation predicts that the corporate tax break will cost the government about $25.5 billion total. The committee also predicts that the tax break for non-corporate entities will total about $169.6 billion over the decade. Although the GAO’s data does not go over other business types, the GAO said it will be monitoring the refund claims for those taxpayers as well.

In 2020, Congress expanded the provisions of the Tax Code which allowed companies to carry losses back as far as 5 years. This allowed previously profitable businesses to mitigate losses as the economy faltered. Normally, the Tax Code allows business owners to tabulate net operating losses for the years they were non-profitable and use those to offset tax bills in the future when they do make money.

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