Loss Carrybacks Can Help Nonprofits but IRS Direction Is Limited

While recent IRS guidance provides nonprofits much-needed direction on using losses to lower taxable income from previous years, the agency will need to do more to help the entities take full advantage of the benefit.

The proposed rules (REG-106864-18) clarify the order in which nonprofits can use net operating losses (NOLs) from unrelated businesses—activities that are separate from a nonprofit’s core mission—to offset taxable income from previous years. The rules direct nonprofits to deduct pre-2018 NOLs first from total unrelated business income “in the manner that results in maximum utilization of the pre-2018 NOLs in a taxable ...