On November 6, President Barack Obama signed into law the Worker, Homeownership, and Business Assistance Act of 2009 (Public Law Number P.L. 111-92).  This legislation provides welcome relief for companies across a wide range of industries that are working to stabilize their businesses and prepare for the eventual recovery of the economy.

According to the official Senate Committee on Finance release:

The net operating loss carryback (NOL) provision is expanded to allow U.S. companies of every size to carry back losses incurred in either 2008 or 2009 against income earned in any of the five prior years. [Emphasis added.]

The American Recovery and Reinvestment Act (ARRA), enacted earlier this year, included NOL carryback provisions, but only for small companies (those with less than $15 million in revenues) and only for a period of two years. Those restrictions made carryback useless for many of the companies that needed it the worst, especially those in the heavy equipment, construction, transportation and leasing industries.

In an official statement, Ralph Petta, Interim President of the Equipment Leasing and Finance Association (ELFA), explains that:

This NOL provision will be helpful to leasing companies that find themselves with significant losses in either 2008 or 2009 since it will allow such companies to carryback (instead of forward) these losses to offset taxes paid in prior years. By offsetting previously paid taxes, these companies will receive a tax refund from the IRS, thus creating an immediate cash infusion. Additionally, it will be helpful to customers of equipment finance companies who are struggling to obtain funding by providing cash flow from tax refunds generated by this provision.

It’s hard to overstate just how important this new law is for American businesses.

• The bill’s “Extension and Modification of First-Time Homebuyer Credit” provision should help jump start the dormant housing sector, with obvious benefits for the construction industry (which has recently been characterized as being in a full-blown depression).
• The ability to restate their recent tax losses against gains from the middle part of the decade puts thousands of companies back on the offensive - today. Many Heavy Equipment distributors, for instance, were very profitable in 2006 and 2007, but a sour economy forced them into NOLs and caused them to slash investment in their own business infrastructures, a dynamic that we expected would slow their recovery as the recession ended. But P.L. 111-92 provides direct access to the capital needed to spur investment. Instead of lagging the economic recovery, these enterprises can now lead the recovery.
• In addition to providing direct tax benefit for these companies, the new law will also reenergize utilization of Section 1031 like-kind exchanges (LKEs), which should generate substantial benefit for participating businesses above and beyond the direct impact of NOL carryback. As the recession set in, many businesses made the decision to stop buying and selling corporate assets, in the process slowing or parking their LKE programs. By allowing companies to push back their losses, there will now be a greater incentive to defer taxable gains for businesses close to or in tax paying positions.

Accruit applauds our partners at Associated Equipment Distributors (AED) and our good friends at the ELFA for their efforts in helping make this legislation a reality. We look forward to playing an active role in helping our clients get their businesses back into high gear.

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For more information on what exactly P.L. 111-92 and its NOL carryback provisions mean for your business:

• AED members can register to attend a free Webinar this Friday. From AEDNews.com: “Steve Pierson, AED’s go-to tax specialist, will offer suggestions on how to take advantage of the NOL rules feature in light of the complex nature of a dealer’s tax position.Discussion will also include how NOL interrelates with bonus depreciation, MACRS, like-kind exchanges, AMT and the passive loss rules.”

• The Joint Committee on Taxation’s “Technical Explanation of Certain Revenue Provisions of the Worker, Homeownership, and Business Assistance Act of 2009″

• White House Fact Sheet