On November 26, proposed regulations were released addressing the Section 163(j) interest expense limitation rules as modified by the 2017 tax reform act. The Proposed Regulations provide needed guidance on the mechanics of determining the interest expense limitation. They also clarify application to consolidated groups, RICs, REITs, partnerships, controlled foreign corporations, and other foreign corporations. The Proposed Regulations also withdrew proposed regulations under old Section 163(j).
The Proposed Regulations closely follow the previous administrative guidance provided in Notice 2018-28, and provide additional guidance related to the mechanics of determining the interest expense limitation, and clarify the application of Section 163(j) to consolidated groups, partnerships, and CFCs. The Proposed Regulations, however, reserve on the interactions between Section 163(j) and the BEAT provisions under Section 59A. That issue is anticipated to be addressed in forthcoming administrative guidance.
Taxpayers should immediately review and assess the impact of the provisions in the Proposed Regulations, and consider commenting on issues that Treasury and IRS should address before issuing final 163(j) guidance, particularly in regard to those areas in which comments have been requested.
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