What does the CARES Act allow regarding net operating losses (NOLs) during 2018 to 2020?

The correct answer reveals a significant change introduced by the CARES Act concerning the treatment of net operating losses (NOLs) for the tax years 2018 to 2020. Under normal circumstances, NOLs could only be carried forward to offset future taxable income. However, the CARES Act allows businesses to carry back NOLs for up to five years. This provision is beneficial as it enables companies that have experienced losses during this period to obtain immediate tax refunds by offsetting those losses against prior years’ taxable income, thereby improving cash flow.

This change was particularly important for businesses facing financial challenges due to the pandemic, as it strengthened their ability to manage their tax liabilities and enhance liquidity. The flexibility to carry back losses helps in alleviating some financial burdens by providing a direct benefit in the form of tax refunds.

The other options do not align with the provisions established by the CARES Act; they either misinterpret the carryback rules or present them in a manner inconsistent with the Act's allowances for NOLs during the specified years.