Due to recent tax reform, there has been a change in the tax law for net operating losses (NOLs). While the cash flow treatment of NOLs remains the same, its appearance on tax returns may be different.

Before the recent tax reform, NOLs could either be carried back two years or carried forward twenty years. This pre-2018 law with NOL carrybacks created interesting cash flow implications that necessitated the preparation of amended returns, adding a potentially confusing layer to one’s analysis.

After tax reform, however, the rules for NOLs have changed, now eliminating the carryback provision and allowing indefinite carryforwards for NOLs incurred beginning in 2018. Therefore, we will only encounter NOLs being carried forward to future years, unless it was incurred prior to tax reform.

For cash flow analysis, net operating losses still represent “paper losses” and do not reflect an actual cash outflow. We will still ignore these NOLs in arriving at cash flow available to service debt.