Proposed regs under Section 163j: Application to the Asset and Wealth Management industry

Overview

On November 26, 2018, Treasury released proposed regulations concerning the Section 163(j) interest expense limitation rules. The 2017 tax reform act revised and broadened the existing interest expense limitation rules. The Internal Revenue Service released prior guidance under Section 163(j) in Notice 2018-28, released on April 2, 2018.

Section 163(j), as modified for tax years beginning after December 31, 2017, generally limits business interest expense deductions. The proposed regulations provide needed guidance related to the mechanics of the interest expense limitation, but feature rules that are very complex and may create a burdensome reporting regime for certain taxpayers.

This Insight highlights some of the proposed regulations as applicable to the Asset and Wealth Management industry.

The takeaway

The Proposed Regulations brought much more complexity than was expected, particularly in the AWM industry that has many tiered partnership structures. Taxpayers should review and assess the impact of the provisions in the Proposed Regulations on their fund structures, and consider commenting on issues that Treasury should address before issuing final Section 163(j) guidance.

See also:

For prior Insights addressing the issue, please see:

• PwC Tax Insight: Preliminary highlights of the proposed regulations under Section 163(j)
• PwC Tax Insight: Proposed rules issued on modified interest expense limitations
• PwC Tax Insight: First guidance under amended interest expense limitation clarifies high-profile issues