Five-year NOL carryback for insurance companies under the CARES Act

Apr 13, 2020
Apr 13, 2020
0 min. read

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act or the Act), signed into law on March 27, addresses numerous areas of the Tax Code. Among many other items, the Act includes a relief provision permitting the carrying back of net operating losses (NOLs) to the prior five years. For our Tax Alert relating to this provision please see our article CARES Act delivers five-year NOL carryback to aid corporations. For our Tax Alert summarizing the Act generally please see our article CARES Act becomes law. For a more detailed analysis of the CARES Act generally and other COVID-19 materials affecting businesses please see the Coronavirus Resource Center and Coronavirus Tax Relief Resource Center.   

More specifically, the Act amends section 172(b) to allow for the carrying back of losses arising in a taxable year beginning after Dec. 31, 2017, and before Jan. 1, 2021, to each of the five taxable years preceding the taxable year of the loss. For calendar year taxpayers, that generally means NOLs incurred in tax years ending Dec. 31, 2018, 2019 and 2020 are eligible for a five-year carryback. 

Prior to the passage of the Act, special rules regarding the carrying back and forward of NOLs pertained to insurance companies, both of the life and non-life variety. This article discusses to what extent the Act amends those rules.

Insurance companies and NOLs prior to the passage of the CARES Act 

Prior to the passage of the Tax Cuts and Jobs Act (TCJA) in December 2017, the general rule under section 172 permitted a corporation to carry NOLs back for two years and carry them forward for 20 years. 

Life insurance companies

Prior to the passage of the TCJA, life insurance companies were subject to special rules. Under section 810, a life insurance company's ‘operations loss deduction’ could be carried back for three years and carried forward for 15 years. This differed from the general rule applicable to all other companies, including property and casualty insurance companies, which permitted the carryback of NOLs for two years and carryforward for 20 years. 

The TCJA eliminated the carryback of NOLs and provided for an unlimited carryforward for all corporations. This change applied to life insurance companies as well (section 810 was revoked). Thus, following the passage of the TJCA, a life insurance company's NOLs could not be carried back to prior tax years but could be carried forward indefinitely without expiration.

Non-life insurance companies 

However, the TCJA included a special provision for the treatment of non-life insurance (property and casualty) companies. Under the TCJA, a non-life insurance company remained subject to the same rules under prior law under which NOLs could be carried back for two years and forward for 20 years. Thus, relative to other companies, non-life insurance companies both enjoyed a benefit (the carryback rule) and suffered from a detriment (the limited carryforward rule).


Life insurance companies

Under the Act, the five-year carryback rule was extended not only to corporations and non-life insurance companies, but also to life insurance companies. Accordingly, life insurance companies with NOLs arising in a taxable year beginning after Dec. 31, 2017, and before Jan. 1, 2021, may carry those losses back to each of the five taxable years preceding the taxable year of the loss. 

We note that although section 2303(b)(1) of the Act added a “Special rule for life insurance companies,” that provision does not change the above result. Under the provision, life insurance companies treat loss carrybacks to pre-2018 tax year as operations loss carrybacks governed by section 801. This provision in the Act was added to enable life insurance companies to obtain the benefit of the five-year carryback. Absent that provision, carrybacks to pre-2018 tax years would not have provided a benefit to life insurance companies since, prior to 2018, life insurance companies were not entitled to utilize NOLs under section 172, only operations loss carrybacks. 

Non-life insurance companies

The Act’s five-year carryback rule also applies to non-life insurance companies. For non-life insurance companies, the Act says that for NOLs arising in a taxable year beginning after December 2017 and before January 2021, the two-year carryback rule does not apply. Instead, a five-year carryback is allowed for NOLs arising in those years, similar to the rule for all companies. See section 2303(b)(1) of the Act (subparagraphs (b) and (C)(i) shall not apply.). However, the carryforward for NOLs arising in those years is still limited to 20 years. 

For taxable years beginning after December 2020, the rules in place prior to passage of the Act remain intact. NOLs that will arise in those years may be carried back for two years and forward for 20 years.


The new five-year carryback rule applies to insurance companies. However, as a result of some of the complexities discussed above and in our prior Alert, a consultation with a tax advisor is recommended when performing carryback-related computations for insurance companies.

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