Private equity-backed companies may be able to reap significant tax benefits from certain provisions detailed in the CARES Act, according to EisnerAmper.
The CARES Act includes some tax provisions that “can be very helpful for private equity portfolio companies,” said Simcha David, partner at EisnerAmper and co-author of a recent paper that details accounting considerations for PE funds and portfolio companies amid the covid-19 pandemic. “The most exciting thing being the ability to take net operating losses generated in 2018, 2019 and 2020 and carry those back five years.”
“If you were profitable in 2013 through 2018, this can be an immediate savings for your company,” said David.
Included in the CARES Act is a five-year carryback period for NOLs arising in tax years beginning after December 31, 2017 and before January 1, 2021, and it amends elements of the 2017 Tax Cuts and Jobs Act (TCJA) that formerly provided for an indefinite NOL carryforward and no carryback.
CARES also allows companies to now use NOLs to fully offset taxable income for tax years beginning before January 1, 2021. The TCJA had previously limited NOL-related offsets to 80 percent of taxable income in any given tax year.
David added that not only can the offsets be carried back without the 80 percent limit, but carried forward as well. “For someone who has income in 2020 and generated an NOL in 2019 or 2018, they can actually carry it forward, and going forward from there, they can carry it forward indefinitely.”
It may even be possible for firms to get an extra 11 months of the benefit by changing their current tax years to end in November, and the next tax year to start before the January 1, 2021 cut-off date, according to David.
The EisnerAmper paper also outlines a number of other CARES Act provisions that private equity funds and portfolio companies can benefit from, including an increased limitation on the deductibility of interest expense, and a 100 percent refundability of alternative minimum tax credits for tax years beginning in 2019.