The National Venture Capital Association (NVCA) is supporting a measure containing a provision the organization said protects the net operating losses (NOLs) of startups.
NVCA officials said H.R. 6756, also known as the American Innovation Act of 2018 and sponsored by House Ways and Means Tax Policy Subcommittee Chairman Vern Buchanan (R-FL) earlier this month, includes a section allowing startups to carry forward their losses and R&D tax credits accrued in the company’s first three years of existence, without regard to Section 382 of the tax code.
Officials said the current version of the guidelines creates an unintentional tax penalty for startups.
“We are thrilled to see NOL reform for startups becoming a higher priority issue in Washington,” Bobby Franklin, NVCA president and CEO. “We are thankful for the inclusion of this provision, and we look forward to working with policymakers and stakeholders to create an effective NOL safe harbor for startups investing in innovation.”
Proponents of the bill said current NOL rules are a major challenge for capital-intensive U.S. startups and can undermine pro-innovation tax policy such as the R&D credit and the deduction for R&D expenditures. The rules in Section 382 of the tax code were written in the mid-1980s with the intent of preventing loss trafficking, or the strategy of companies acquiring failing firms with enormous losses on their books for the sole purpose of using the tax losses to offset other unrelated income.
The NVCA said it supports the creation of a safe harbor from Section 382 NOL limitations for startups less than 12 years old going through viable fundraising rounds and ownership changes.