Fundamentals of Tax Loss and Tax Credit Carryforwards

Summary

This practice note discusses the basics of net operating loss (NOL) and tax credit carryforwards as well as the financial accounting treatment for these tax items. In implementing a tax loss carryforward regime, Congress allowed a taxpayer to smooth its earnings for tax purposes by effectively transferring its operating losses to another taxable year. Congress uses tax loss carryforwards to help implement its tax policies. Similarly, Congress often enacts tax credit legislation to implement specific economic goals as well as to influence the economy in general.