New York City—Corporate Income, Miscellaneous Taxes: City Decoupled From Certain CARES Act Provisions

19 June 2020

A New York law has decoupled the New York City business corporation tax, general corporation tax, banking corporation tax, and unincorporated business tax from certain federal income tax changes contained in the CARES Act.

Business interest expense limitation. For all four taxes, an addition modification is required for the amount of the increase in the federal interest deduction allowed under IRC Sec. 163(j)(10). This relates to the federal CARES Act amendment increasing the cap of the business interest expense limitation and allowing an election to use 2019 adjusted taxable income for 2020. The modification is required for taxable years beginning in 2019 and 2020.

Net operating loss deduction. For the general corporation tax, banking corporation tax, and unincorporated business tax, the law provides that for taxable years beginning before 2021, any amendment to IRC Sec. 172 made after March 1, 2020, does not apply.

Under the CARES Act, NOLs arising in tax years beginning after December 31, 2017, and before January 1, 2021 (e.g., NOLs incurred in 2018, 2019 or 2020 by a calendar-year taxpayer) may be carried back to each of the five tax years preceding the tax year of such loss. The CARES Act also temporarily removes the current 80% limitation on NOL absorption, reinstating it for tax years beginning after 2020. Special carryback rules are provided for taxpayers such as real estate investment trusts (REITs) and life insurance companies.

Excess business loss limitation. For the unincorporated business tax, for taxable years beginning before 2021, an addition modification is required for the amount of increase in the federal deduction allowed under any amendment to IRC Sec. 461(l) made after March 1, 2020. This relates to the federal suspension of the excess business loss limitation.  the CARES Act retroactively eliminates the EBL limitation for tax years 2018 and 2019, and instead defers its effective date to tax years beginning after Dec. 31, 2020.

Ch. 121 (S.B. 8411), Laws 2020, effective June 17, 2020, applicable as noted