ExpertHard1 markMultiple Choice
CPA · Question 66 · Area V: Entity Taxation
A corporation has a $50,000 Net Operating Loss (NOL) in the current year (Year 5). It had taxable income of $20,000 in Year 1, $10,000 in Year 2, and $30,000 in Year 3. How is the NOL treated?
A corporation has a $50,000 Net Operating Loss (NOL) in the current year (Year 5). It had taxable income of $20,000 in Year 1, $10,000 in Year 2, and $30,000 in Year 3. How is the NOL treated?
Answer options:
A.
Carry back to Year 1, then Year 2, then Year 3.
B.
Carry back 2 years, forward 20.
C.
Carry forward indefinitely, offsetting 100% of future taxable income.
D.
Carry forward indefinitely, limited to 80% of taxable income in the carryforward year.
How to approach this question
Apply TCJA NOL rules: No carryback (except farms/insurance). Indefinite carryforward. 80% income limit.
Full Answer
D.Carry forward indefinitely, limited to 80% of taxable income in the carryforward year.✓ Correct
D
Under the TCJA, NOLs arising in tax years after 2017 generally cannot be carried back. They are carried forward indefinitely. However, the deduction in a carryforward year is limited to 80% of taxable income (determined without regard to the NOL deduction).
Common mistakes
Applying the old 2-back/20-forward rule or the 100% offset rule.
Practice the full CPA REG Practice Exam 2
72 questions · hints · full answers · grading
More questions from this exam
Q01A CPA is representing a client in an IRS examination regarding a complex tax shelter transaction....HardQ02A tax return preparer is facing a penalty for an understatement of tax liability on a client's re...HardQ03Taxpayer L received a Statutory Notice of Deficiency (90-day letter) from the IRS regarding a tax...HardQ04A CPA is sued for common law negligence by a third party who relied on the CPA's audit report. Th...HardQ05Which of the following communications between a CPA and a client would generally be protected by ...Hard