The National Venture Capital Association (NVCA) commended Congress for including net operating loss (NOL) reform in its end-of-year tax package.
The proposed legislation – the American Innovation Act of 2018 – includes a proposal sponsored by Rep. Erik Paulsen (R-MN) to protect the NOLs of startup companies. Specifically, it allows them to carry forward their losses and research and development tax credits accrued in the first three years without regard to Section 382 of the tax code. That section of the tax code currently can create an unintentional tax penalty for startups.
“We are thrilled to see continued momentum in Congress on the issue of NOL reform for startups,” Bobby Franklin, NVCA president and CEO, said. “The inclusion of NOL reform in the end-of-year tax bill is a great sign that Congress recognizes this is a major challenge for America’s startups and is seeking to address the problem.”
Startups often accumulate NOLs when using investment capital on research and development and hiring. The current rules in Section 382 rules can make it harder for startups to carry forward their NOLs. Essentially, this penalizes startups for investing in innovation and hiring.
“We appreciate the hard work and leadership of those who championed this issue in the House, and are grateful for their efforts to ensure it was included in the tax package, especially Chairman Kevin Brady and Rep. Erik Paulsen,” Franklin said. “We look forward to continuing to work with policymakers to ensure that an NOL safe harbor for startups investing in innovation gets over the finish line.”