On Monday, June 8, the IRS released FAQs providing guidance for tax-exempt organizations that have carrybacks of net operating losses (NOLs) from unrelated trades or businesses. Although the Tax Cuts and Jobs Act had disallowed NOL carrybacks for 2018 and future years, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) allows organizations to carryback NOLs generated in taxable years beginning after December 31, 2017, and before January 1, 2021, for up to five years.
Under section 512(a)(6) of the Internal Revenue Code of 1986, as amended, for tax years beginning after December 31, 2017, tax-exempt organizations with more than one unrelated trade or business, must calculate unrelated business taxable income (UBTI) separately, including for purposes of calculating any NOL deduction, with respect to each trade or business (referred to as "siloing"). After passage of the CARES Act, it was unclear how the NOL carryback rule should work in conjunction with the siloing provisions of section 512(a)(6).
The FAQs explain that NOLs generated in 2018 and later years are siloed, but if they are carried back to a tax year before 2018 they can be used against aggregate unrelated business taxable income. However, if the NOLs are carried back to 2018 or a later year they can only be used to offset income from the same unrelated trade or business.