Advance refunds of net operating losses for C corporation taxpayers

(a)

In general

(1)

Net operating loss carryovers

Section 172 of the Internal Revenue Code of 1986 is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following:

(g)

Advance refund for C corporations relating to certain carryovers arising during 2015 through 2021

(1)

In general

(A)

Election

A taxpayer to whom this paragraph applies may elect an advance refund of net operating loss carryovers in the amounts and manner determined under subparagraphs (B) and (C).(B)

Net operating loss carryovers arising during 2015 through 2021

The advance refund determined under this subparagraph is an amount elected by the taxpayer in lieu of an election with respect to a net operating loss carryback under subsection (b)(1)(D), in the amount equal to—(i)the rate set forth in section 11 (as in effect on the date of the enactment of this paragraph), multiplied by(ii)any net operating loss carryovers that arose—(I)in a taxable year beginning on or after January 1, 2015, and before January 1, 2020, or(II)in a taxable year beginning on or after January 1, 2019, and before January 1, 2022.(C)

COVID–19 research expenditures for 2020 and 2021

The advance refund under this subparagraph is the amount of the advance refund with respect to the portion of any net operating loss attributable to and arising from qualified COVID–19 research expenditures that are paid or incurred on or after February 15, 2020 and before January 1, 2022, that is equal to 200 percent of the amount otherwise taken into account under paragraph (1)(B)(ii). A net operating loss shall be treated as arising from qualified COVID–19 research expenditures to the extent that such expenses are paid or incurred by the taxpayer.(2)

Qualified COVID–19 research expenditures

For purposes of this subsection, the term qualified COVID–19 research expenditures means expenditures paid or incurred in connection with the research and development of products regulated by the Food and Drug Administration (including biologics, drugs, and devices) that are intended to be used in the diagnosis, prevention and treatment of coronavirus disease 2019 (COVID–19), and such other similar expenditures as prescribed by the Secretary in regulations.(3)

Taxpayer described

For purposes of paragraph (1), this subsection applies to a taxpayer if—(A)the taxpayer is a C corporation,(B)the average number of full-time employees (as determined for purposes of determining whether an employer is an applicable large employer for purposes of section 4980H(c)(2) of the Internal Revenue Code of 1986) employed by the taxpayer during calendar year 2019 or 2020, whichever is greater, is greater than five and did not exceed 1,500, and(C)the taxpayer has complied to date with filing of all forms or return requirements under section 3102, 3111, 3301, and 3402 with respect to calendar years 2019 and 2020.(4)

Special rules

For purposes of this subsection—(A)

Certain contributions of capital not taken into account in determining ownership change under section 382

For purposes of determining whether an ownership change has occurred with respect to the loss corporation under section 382(g) in computing the amount of any advance refund under this section, a transfer of stock in exchange for a capital contribution to such loss corporation shall not be taken into account if—(i)the value of the stock transferred is commensurate with the amount of capital being contributed, and(ii)such exchange is not part of a plan to redeem other shareholders.(B)

Aggregate limitation

The aggregate amount of net operating loss or net operating loss carryover for which an advance refund is elected pursuant to this subsection shall not exceed $100,000,000.(C)

Reduction of net operating loss

The net operating losses of the taxpayer determined under subsection (c) shall be reduced by the amount of any net operating loss or net operating loss carryover for which an advance refund is elected pursuant to this subsection, including the amount of any net operating loss to which paragraph (1)(C) applies.(D)

Aggregation rule

All corporations treated as a single employer under subsection (a) of section 52 or subsection (m) or (o) under section 414 shall be treated as a single taxpayer for purposes of this section.(5)

Regulations and guidance

The Secretary shall issue such regulations and other guidance as may be necessary to carry out the purposes of this section, including regulations and other guidance to carry out the purposes of this subsection—(A)to allow for the making of an election for the application of this subsection in such manner as the Secretary may by regulations prescribe,(B)to allow the payment of the advance refund in accordance with section 6429 based on such information as the Secretary shall require,(C)to allow advance refunds permitted under this subsection to be claimed on such forms as the Secretary shall prescribe, and(D)to provide for the application of this subsection to taxpayers that file consolidated returns.(6)

Advance refund

See section 6429 for rules for claiming the advance refund.

(2)

Conforming amendment

Section 172(c) of such Code is amended by inserting before the period at the end the following: and with the reduction required by subsection (g).(b)

Advance refund of research credits and orphan drug credits for C corporation taxpayers

Section 39 of such Code is amended by adding at the end the following:

(e)

Advance refund of research and orphan drug credits

(1)

In general

A taxpayer that is a C corporation may elect an advance refund of the portion of any unused business credit carryforward under section 39 that—(A)is attributable to the credit determined under section 41 or the credit determined under section 45C, and(B)is an unused business credit carryforward carried to a taxable year beginning on or after January 1, 2020, and before January 1, 2022, and that arose in taxable years beginning after January 1, 2015.(2)

Limitation

The amount elected under paragraph (1) for a taxable year may not exceed the excess of $25,000,000 reduced by the amount elected for the taxable year as an advance refund of net operating loss carryovers under section 172(g).(3)

Inapplicability of sections 38(c) and 383(a)

For purposes of this subsection, the amount of any advance refund shall be computed without respect to the limitations under sections 38(c) and 383(a).(4)

Regulations and guidance

The Secretary shall issue such regulations and other guidance as may be necessary—(A)to allow for the making of an election under paragraph (1) in such manner as the Secretary may by regulations prescribe,(B)to allow the advance refund under this subsection and section 6429 based on such information as the Secretary shall require, and(C)to allow advance refunds under this section to be claimed on such forms as the Secretary shall prescribe.

(c)

Advance refund of certain net operating losses, research credit, and orphan drug credit

(1)

In general

Subchapter B of chapter 65 of such Code is amended by inserting after section 6428 the following new section:

6429.

Advance refund of certain net operating losses, research credit, and orphan drug credit

(a)

In general

In the case of a C corporation, the advance refund sum may be claimed by the taxpayer as follows:(1)

Payroll taxes

First, by reducing deposits or payments of—(A)the applicable employment taxes imposed under sections 3101(a), 3101(b), 3111(a), and 3111(b) (reduced by any credits allowed under subsections (e) and (f) of section 3111, sections 7001 and 7003 of the Families First Coronavirus Response Act and section 2301 of the Coronavirus, Aid, Relief, and Economic Security Act) on the wages paid with respect to the employment of all the employees of the taxpayer for a calendar quarter, and(B)the withholding taxes required to be paid by an employer pursuant to section 3403, with the balance of the advance refund payable to the taxpayer.(2)

Advance refundability of excess losses

Second, any remaining amount to be refunded to the taxpayer after the application of paragraph (1) shall be treated as an overpayment and shall be refunded in a manner similar to that prescribed in subsection 2301(b)(3) of the Coronavirus, Aid, Relief, and Economic Security Act.(b)

Advance refund sum

For purposes of subsection (a), the term advance refund sum means the sum of—(1)the amount elected by the taxpayer as an advance refund of net operating loss carryovers under section 172(g), and(2)the amount of any unused business credit carryforward elected under section 39(e) that is attributable to the research credit determined under section 41 or the orphan drug credit determined under section 45C.(c)

Recapture

(1)

In general

The Secretary shall, by regulations, provide for recapturing the benefit of any advance refund allowable under this section if there is a sale or full or partial liquidation of the corporation during the recapture period. The recapture amount shall not exceed the lesser of—(A)the amount of any proceeds or distributions received by shareholders of the corporation attributable to such sale or liquidation, or(B)the amount that the advance refund exceeds the aggregate amount spent by the corporation on payroll, research expenses, and property, plant and equipment during the recapture period.(2)

Recapture period

For purposes of paragraph (1), the term recapture period means the two-year period beginning on the date of the advance refund.

(2)

Transfers to Federal old-age and survivors insurance trust fund

There are hereby appropriated to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund established under section 201 of the Social Security Act (42 U.S.C. 401), the Federal Hospital Insurance Trust Fund established under section 1817(a) of the Social Security Act (42 U.S.C. 1395i(a)), and the Social Security Equivalent Benefit Account established under section 15A(a) of the Railroad Retirement Act of 1974 (45 U.S.C. 14 231n–1(a)) amounts equal to the reduction in revenues to the Treasury by reason of this section (without regard to this subsection). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund or Account had this section not been enacted.(3)

Clerical amendment

The table of sections for subchapter B of chapter 65 of such Code is amended by inserting after the item relating to section 6428 the following new item:

Sec. 6429. Advance refund of certain net operating losses, research credit, and orphan drug credit.

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2019.