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Willow Corp. (a C corporation) reported taxable income before the net operating loss deduction (NOL) in the amount of $100,000 in 2020. Willow had an NOL carryover of $90,000 to 2020. How much tax will Willow Corp. pay in 2020, what is its NOL carryover to 2021, and what is its NOL carryover to 2021 under the following assumptions?

a. $50,000 of the NOL was generated in 2016 and $40,000 of the NOL was generated in 2017.

Willow Corp. tax liability in Year 3?

Willow Corp. NOL carryover to Year 4?

b. $50,000 of the NOL was generated in 2018 and $40,000 was generated in 2019.

Willow Corp. tax liability Year 3?

Willow Corp. NOL carryover Year 4?

Answer 1

Answer-

Part 1

Taxable Income 2020- 100000

NOL carry forward - 90000

As per the Tax Cut and Jobs Act NOL are limited to 80% of the taxable income in the subsequent periods in any one tax period.This rules applies to losses originating from Jan 2018 onwards

Therefore

100000*80%=80000

The NOL is limited to 80000 (80% of taxable income) and thus Willow corp will have to pay tax on $20000, and the remaining NOL of $10000 (90000-80000) will be cariied forward as deferred tax asset

Part 2

Before the introduction of Tax Cut and Jobs Act , NOL were allowed to be carried forward for 20 years . Thus losses generated before are allowed to be carried foward for 20 years

If $50,000 of the NOL was generated in 2016 and $40,000 of the NOL was generated in 2017 then the entire loss would be allowed offset against the taxable income of 2020 and Willow corp would pay tax on $ 10000 (10000-40000-50000)