AICPA Comments on Initial Guidance for Deduction of Business Interest Expense under TCJA

July 10, 2018

  • AICPA makes more than 20 recommendations
  • Letter addresses questions about impact of IRC section 163(j) on C corporations and partnerships

Washington, D.C. (July 9, 2018) – The American Institute of CPAs (AICPA) today made recommendations to the U.S. Department of the Treasury and Internal Revenue Service (IRS) about the initial guidance governing the deduction of business interest expense by certain large businesses, as amended by the Tax Cuts and Jobs Act (TCJA).

In Notice 2018-28, Initial Guidance Under Section 163(j) as Applicable to Taxable Years Beginning After December 31, 2017, Treasury and IRS described the rules they expect to issue and requested comments about the additional guidance that taxpayers will need to compute the business interest expense limitation under Internal Revenue Code (IRC) section 163(j).

The AICPA made more than 20 recommendations, a number with illustrative examples, in the following areas related to section 163(j):

  • Treatment of Disallowed Disqualified Interest from Last Taxable Year Beginning Before January 1, 2018:
    • Rules for the allocation of business interest from a group treated as affiliated under the super-affiliation rules applicable to old section 163(j) to taxpayers under new section 163(j)
  • C Corporation Business Interest Expense and Income:
    • Treatment of interest expense and income as business interest
    • Treatment of a partnership’s investment interest expense with respect to its corporate partners
  • Application of Section 163(j) to Consolidated Groups:
    • Allocation of the limitation among group members
    • Treatment of disallowed interest deduction carryforwards when a member leaves the group
    • Treatment of disallowed interest deduction carryforwards of a member that joins the group, including whether the carryforwards are subject to a separate return limitation year 
    • Application of Treas. Reg. § 1.1502-32 to disallowed interest deductions
    • Application of section 163(j) to a consolidated group with one or more members that conduct a trade or business described in section 163(j)(7)(A)(ii), (iii), or (iv), as amended by the TCJA, or whose members hold an interest in a non-corporate entity such as a partnership that conducts such a trade or business
  • Impact of Section 163(j) on Earnings and Profits
  • Other –The Application of the Section 163(j) Limitation on Partnerships:
    • Treatment of excess business interest carryforwards by partners
    • Impact of section 743(b) adjustments
    • Real property trade or business election
    • Application of section 704(c) methods
    • Allocation of items between exempt and non-exempt businesses

The AICPA said it intends to submit a second comment letter on the interaction of IRC section 163(j) with international tax provisions.