Potential impact of tax changes in response to COVID-19

renewable energy covid 19

On March 27, the president signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act, H.R. 748, the Act; P.L. 116-136).

While the Act does not directly deal with the policy issue of clean or renewable energy, pro-renewable advocates did aggressively lobby for specific legislation to assist renewable energy businesses and investors. Their efforts are continuing, but in the end Congress focused on the pressing matter of public health and economic assistance rather than specifically addressing the renewable energy sector. 

However, as part of the effort to assist businesses in reducing their federal income tax burden, a few federal income tax provisions did ultimately make it into the CARES Act legislation, and a few of those provisions (explained below) may indirectly benefit certain renewable energy transactions, depending on the specific facts and circumstances.

Therefore, renewable energy transactions (that involve either business interest deductions or other tax deductions that give rise to tax losses) may now provide taxpayers with the opportunity to claim cash tax refunds, through the mechanism of filing amended federal tax returns.

We will alert you if subsequent federal legislation addresses either the PTC or ITC tax credit, along with other tax rules of direct impact to the renewable energy sector. 

CARES Act Section 2303: Net operating loss (NOL) rule changes

The CARES Act contains a provision that deals with the modification of Internal Revenue Code (IRC) Section 172 on the income tax accounting for the net operating loss (NOL) deduction. 

In a departure from rules last changed as part of the 2017 Tax Cuts and Jobs Act (TCJA), the CARES Act modifies the NOL rules for losses arising in tax years beginning after Dec. 31, 2017, and before Jan. 1, 2021 (generally 2018, 2019, and 2020 tax years), and now allows such NOLs to be carried back five years. 

This is a notable change that can have an impact on certain renewable energy project sponsors or other companies, and it may prove attractive to tax equity investors in particular.


Under the TCJA, NOLs for tax years beginning after Dec. 31, 2017, could not be carried back at all. 


A taxpayer can now carry back NOLs arising in tax years 2018 through 2020 five years preceding the loss year. 
Corporations that generate NOLs in 2018, 2019, or 2020 can file Form 1139 (or amended federal income tax returns if the IRS does not provide relief for filing late 1139s) seeking a refund of taxes paid in those prior years. Such cash refunds can now help such companies make payroll, rent, and other expenses or corporate needs. 

Of additional note is the fact that the NOLs generated in 2018, 2019, and 2020 can now fully offset 100% of taxable income, whereas under the TCJA, carrybacks were prohibited and there was an 80% income limitation on the utilization of NOL carryforwards arising in years beginning after Dec. 31, 2017. 

The CARES Act temporarily repeals the 80% limit, thereby enabling a potential cash infusion (in the form of a cash refund of previously paid tax). 

For NOLs generated in the three tax years beginning before 2021 (specifically 2018, 2019 and 2020), taxpayers can now take an NOL deduction equal to 100% of taxable income (rather than 80%). 

For NOLs arising from tax years beginning after Dec. 31, 2017, and before Jan. 1, 2021, and carried to another tax year, such NOLs can offset 100% taxable income.

Finally, for NOLs arising in tax years beginning after Dec. 31, 2020, and carried forward to another tax year, they can only offset 80% of the loss corporation’s taxable income.

However, the CARES Act did not change the existing tax rule that requires that corporate capital losses be allowed a carryback period of three years and a carryforward period of five years. This rule remains unchanged.

Impact on sponsors and product/service chain companies

The ability to carry back tax losses to prior tax years will have value if and only if the business taking the carryback had paid tax in a prior year and is entitled to claim a tax refund. Because many smaller businesses either zero-out their taxable income or are simply not profitable, this change may be of no or little economic benefit if prior-year federal income tax liabilities paid in the preceding five years were zero or nominal. 

However, for those having paid net federal income tax, the ability to claim a cash refund could be a helpful economic benefit otherwise unexpected, particularly, considering that for periods before 2018, the federal corporate tax rates were as high as 35%, rather than the current 21% tax rate.

Impact on tax equity investors

In general, tax equity investors, by definition, have excess federal income tax liabilities for which either PTC or ITC tax credits and depreciation have value. 

Normally, most tax equity investors make their decision to invest under the assumption that either the tax credit or tax depreciation “losses” will be used prospectively to lower their corporate tax liability in the current or future years. 
Even though the PTC and ITC tax credits remain eligible for a one-year carryback, and even though TCJA tax law changes allow losses/NOLs to be carried forward indefinitely, the new ability to carry back NOLs five years creates a new investment underwriting perspective that did not exist under current law. 

In addition, considering that prior to 2018 the federal corporate income tax rate was at or around 35%, rather than the much lower current 21% tax rate, these carrybacks have a higher dollar value. Thus the new NOL rules provide a form of tax rate/refund arbitrage opportunity.

Special partnership considerations

The ability of an individual to generate an NOL remains subject to rules that often limit the ability of a partner to deduct an allocation of such a loss. (Consider the application of rules that determine deductibility of losses once a partnership has allocated a loss to the partner, such as IRC Sections 465 and 469). 

In addition, these NOL changes may make it more appealing to claim bonus depreciation in a tax equity partnership, but consideration of the loss limitation rules will need to be taken into account, and there may be some sensitivity on behalf of tax equity as to the magnitude of their obligations to restore a deficit capital account. This sensitivity can also potentially translate into a decision to use project-level debt and the tax basis it provides rather than an unlevered/back-levered structure.

Taxpayers should also confirm the impact of this federal law change on state income tax compliance and determine if the lowering of a prior year’s federal income tax would entitle the taxpayer to a corresponding state income tax refund. Consult with your CohnReznick state and local tax (SALT) advisor, as the interaction of the federal and state income tax regimes can be complex given that federal-state tax conformity varies in each state, as does the timing that any state might conform or opt out of conformity.

CARES Act Section 2306: Temporary partial increase in business interest deduction – 163(j)


Prior to the TCJA, the allowable deduction for business interest was generally 100% the amount of the interest expense. 
However, under the TCJA with the amendment of IRC Section 163(j), the allowable business interest deduction was notably limited to interest income of the borrower plus 30% of the borrower’s adjusted taxable income (ATI). Under this rule, business interest expense in excess of the 30% limitation may only be deducted in a later tax year, subject to additional rules. 

While the TCJA did provide an exception for “small businesses” (a defined term), another rule prevented any otherwise eligible small business classified as a “tax shelter” from being eligible for that small business exception. Unfortunately, many partnerships, especially common in renewable energy transactions, were excluded by that rule.

Therefore, both overall, and in the case of small business, the section 163(j) interest deductibility limitation imposed by the TCJA created both a tax compliance burden on many businesses and a drag on after-tax returns on many leveraged renewable energy investments.


Because the CARES Act (as well as other related coronavirus federal relief programs) is heavily reliant on loans to business, and because Congress intended to lower the tax burden on business as part of its economic policy, the CARES act temporarily modifies the Section 163(j) business interest limitation rules in order to allow businesses subject to the rules, the ability to deduct a higher amount of their overall business interest. 

Specifically, the CARES Act modifies the deduction limit from 30% of ATI to 50% of ATI for tax years beginning in 2019 or 2020. 

Additionally, for tax years beginning in 2020, businesses may elect to compute the applicable business interest expense limit based on their 2019 ATI. In most cases, a business’s 2019 ATI will be higher than its 2020 ATI due to current economic factors. For partnerships, this election must be made by the partnership. 

Unfortunately, the new modifications to Section 163(j) are complex for partnerships and its partners.

For example, the increase in the deduction limitation will only apply to partnerships in 2020, not for 2019. 

Any excess business interest of the partnership for any tax year beginning in 2019 that is allocated to the partner will be treated as follows: 

  • 50% will be treated as paid or accrued by the partner in the partner's first tax year beginning in 2020, and it won’t be subject to any limits in 2020. 
  • The remaining 50% will be subject to the normal rules (i.e., the deduction will remain suspended until the partnership allocates excess taxable income or business interest income to the partner.)

Taxpayers can elect out of the increased deduction limit for any tax year. 

Failure to elect out means that the increased limit is applied.

CARES Act Section 2304: Non-corporate excess business loss rules

The CARES Act also loosens the loss deduction rules that apply to taxpayers other than corporations, most notably individuals. 

As with corporate NOLs, the non-corporate loss rules may lead to tax refunds for the taxpayer. 


Under the TCJA, a noncorporate taxpayer was not allowed to claim a deduction for excess business losses for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026. Under those rules, any business losses in excess of business income in excess of $500,000 for joint filers ($250,000 for individuals) were treated as disallowed excess business losses and treated as part of the taxpayer’s NOL carryover to the following tax year. The rules required that a taxpayer first apply the at-risk rules and passive activity loss rules before application of the excess business loss limitation. 


Now, under the CARES Act, the limitation on excess business losses is removed for tax years beginning in 2018, 2019, and 2020. 
Because the limitation retroactively no longer applies to the 2018 tax year, taxpayers who were subject to the limitation for 2018 should explore the benefit of filing an amended return for the 2018 tax year and, of course, take the new rule into account in their 2019 and 2020 tax returns. 

Note, however, that the pre-Act limitation will once again apply for tax years beginning after Dec. 31, 2020. 

Attention turns to future COVID-19 federal relief packages for renewables

During a weekly press conference, Speaker Nancy Pelosi began pivoting to the next relief measure and what Democrats would like to see in it. “There's so many things we didn't get in any of these bills yet in the way that we need to,” Pelosi told reporters. Meanwhile, some in the Senate leadership, and even the White House, have expressed a contrary view.

Meanwhile, renewable energy groups are continuing their push for green energy tax credits and other clean energy provisions in the next package, which could contain a number of potential certain yet-to-be-defined “infrastructure” incentives. In particularly, a number of Congressional Democrats and private sector environmental groups and NGOs continue to seek the inclusion of climate change legislation and continue to lobby for federal tax credits for wind and solar in an expected “Phase IV” or “Phase V” corporate rescue package. While there are number of more focused policy “asks” by this advocacy community, of the most likely outcomes would be a date-change extension for the PTC or ITC, given the general reluctance of many elected officials to adopt truly new policy changes without the benefit of regular order debate.

Regardless, Senate Majority Leader Mitch McConnell has adjourned the Senate until April 20. 

Many believe further federal legislative action would occur no earlier than May 2020.


Joel Cohn, CPA, Partner


Brett Weal, Principal


Lee Peterson, JD, Senior Manager



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This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.