Fixing the TCJA’s Net Operating Losses Provision

After passage of any major piece of legislation, Congress identifies areas of the statutory text that need revision. The Tax Cuts and Jobs Act (TCJA) is no exception. Former Ways and Means Chairman Kevin Brady (R-TX) has identified a laundry list of fixes needed, but Congress has been slow to act on the changes. Much of the attention has rightly focused on the so-called “retail glitch,” which accidently excluded some categories of investment from the TCJA’s full expensing provision. However, another important fix is needed: correcting the bill’s net operating loss (NOL) provision. NOLs are an important part of the income tax code. Tax years don’t always align cleanly with a firm’s business cycle; NOLs help mitigate the discrepancy to ensure companies are not taxed on nonexistent income. Imagine a company with $50 in losses in January and $100 of income in July. We would all agree that this company only made $50 in the year; their book and…

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