Question

Does a C corporation gain more tax benefit by (a) carrying forward a net operating loss to offset other taxable income two years after the NOL arises or (b) carrying the NOL back two years? Explain.

a) (a) carrying forward a net operating loss to offset other taxable income two years after the NOL arises

b) (b) carrying the NOL back two years

c) Both (a) and (b)

d) Neither (a) nor (b)

Answer 1

The tax benefit of carrying forward or carrying back an NOL for a C corporation depends on factors such as past and future tax rates, available taxable income, and legislative changes. A carryback may provide an immediate refund, which is favorable for cash flow, but a carryforward might be more beneficial if tax rates are expected .

Step-by-step explanation:

Whether a C corporation gains more tax benefit by carrying forward a net operating loss (NOL) or by carrying it back depends on several factors, including the corporation's tax rates in the different years, the availability of taxable income to offset, and the time value of money. Generally, carrying back an NOL can provide an immediate tax refund, which may be beneficial for cash flow. However, if the corporate tax rates were lower in the past or if there isn't sufficient taxable income to offset in those years, then carrying forward the NOL might be more advantageous. Also, the law may have certain restrictions or changes over time regarding NOL carrybacks and carryforwards. As of my knowledge cutoff in early 2023, for tax years beginning after December 31, 2020, the Tax Cuts and Jobs Act (TCJA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act have both made significant changes to the rules for NOLs making carrybacks generally allowed for a limited period and carryforwards indefinitely, but subject to certain limitations.