Small Business and Consumer Credit Act of 2026
- Sponsor
- Rep. Carey, Mike [R-OH-15]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jun 22, 2026
Bottom line
The bill provides enhanced flexibility for specified financial institutions to utilize net operating losses, potentially reducing their tax burden during periods of financial difficulty.
What it actually does
This bill amends the Internal Revenue Code of 1986 to provide specific rules for how certain financial institutions can use their net operating losses (NOLs). It establishes a phased approach, starting with a 20-year carryover for NOLs in 2027, adding a one-year carryback in 2028, and expanding to a two-year carryback alongside the 20-year carryover for 2029 and subsequent years. These special rules primarily benefit smaller, independent banks and certain banks within affiliated groups that are not large financial holding companies, allowing them greater flexibility in offsetting past or future taxable income with current losses.
Proponents argue
Proponents argue that this bill provides crucial tax relief and financial stability for smaller and independent financial institutions, which are vital for local economies and small business lending. They contend that allowing these institutions to carry back losses more effectively will help them navigate economic downturns, maintain liquidity, and continue providing credit to consumers and small businesses, thereby strengthening the overall financial system.
Opponents contend
Opponents might argue that expanding tax preferences for specific industries, even financial institutions, could complicate the tax code and potentially lead to revenue losses for the federal government. They might also raise concerns about fairness, suggesting that such targeted relief could create an uneven playing field or that the benefits might not flow directly to small businesses and consumers as intended.
The bill is concise and its core provisions are understandable with a basic knowledge of tax concepts, making it accessible for evaluation within a short timeframe.
Section 2(a), amending Section 172(b)(1) of the Internal Revenue Code of 1986.
Enhanced Net Operating Loss Treatment for Financial Institutions
This provision creates new rules for how certain financial institutions can use their net operating losses (NOLs) to reduce their taxable income. For losses incurred in 2027, they can only be carried forward for 20 years. For losses in 2028, they can be carried back one year and forward 20 years. For losses in 2029 and beyond, they can be carried back two years and forward 20 years. This allows these institutions to offset profits from prior years, potentially resulting in tax refunds, or to reduce future tax liabilities.
Supporters argue
Supporters argue that these enhanced NOL rules provide a critical safety net for financial institutions, particularly smaller ones, enabling them to absorb losses without severe long-term financial distress. This stability, they contend, helps these banks continue to lend to small businesses and consumers, supporting economic growth and preventing localized financial crises.
Critics contend
Critics might argue that such specific tax benefits distort the tax code and could be seen as a bailout or special favor for the financial industry. They may contend that a more general approach to NOLs for all businesses would be fairer, or that the potential revenue loss could impact other federal programs.
Tradeoffs
The provision balances the desire to provide financial stability and support for certain financial institutions, especially those serving local communities, against concerns about targeted tax breaks, potential federal revenue impacts, and the complexity of the tax code.
Section 2(a)(iv)
Scope of Eligible Financial Institutions
This section precisely defines which financial institutions qualify for the new net operating loss rules. It includes independent banks (not part of an affiliated group), members of affiliated groups that include banks not classified as large financial holding companies, and banks subject to specific bad debt reserve rules. This definition aims to target the relief primarily towards smaller, community-focused, or less complex financial institutions, rather than large, diversified financial conglomerates.
Once a specified financial institution elects to apply these special NOL rules for a given taxable year, that election is irrevocable for that year.
Section 2(a)(v)(III)
Why it matters:This is standard legislative practice for tax elections to ensure certainty and prevent taxpayers from retroactively changing their election based on subsequent events. It's not necessarily evasive.
Case for: Proponents argue that irrevocability provides certainty for both taxpayers and the Treasury, simplifying tax administration and preventing opportunistic changes to elections.
Case against: Critics might argue that irrevocability could disadvantage institutions if unforeseen circumstances make the initial election less favorable, limiting their flexibility.
Estimated impact: This provision has an administrative impact, ensuring stability in tax reporting rather than a direct fiscal impact.