WASHINGTON, DC – The National Venture Capital Association (NVCA) was delighted to see continued progress on net operating loss (NOL) reform with the inclusion of the “American Innovation Act of 2018” in the end-of-year tax package, which will be voted on in the House of Representatives tomorrow. The bill includes a proposal sponsored by Rep. Erik Paulsen (R-MN) to protect the NOLs of startups by allowing them to carry forward their losses and R&D tax credits accrued in the first three years of the start of a company’s active trade or business without regard to Section 382 of the tax code, which 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. 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,” said Bobby Franklin, NVCA President and CEO. “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. 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.”

Startups often accumulate NOLs when using investment capital on research and development and hiring, activities that public policy separately seeks to encourage. The Section 382 rules on the other hand often make it harder for startups to carry forward their NOLs, essentially penalizing startups for investing in innovation and hiring, since they serve as assets on a company’s balance sheet.

Learn more about how the current NOL rules negatively affect startups in NVCA’s full NOL safe harbor proposal.