AICPA recommends changes in rules for deducting business interest expenses

The American Institute of CPAs has written a letter to the Treasury Department and the Internal Revenue Service with some recommendations about ways to improve their proposed regulations for implementing the limitations under the Tax Cuts and Jobs Act on the deduction for business interest expenses.

AICPA building in Durham, N.C.

Thursday’s letter covered a variety of topics including the definition of interest, along with the application of section 163(j) to consolidated groups, partnership-related items and international tax items.

“The proposed regulations will impose substantial administrative burdens on taxpayers (and the IRS) as a result of the exceptionally broad definition of interest without meaningfully contributing to the sound administration of tax policy. The proposed regulations create a parallel as opposed to interpretive definition of interest,” said the letter from AICPA Tax Executive Committee chair Annette Nellen. “Therefore, taxpayers will need to engage in significant and comprehensive compliance activities in order to ensure that they are treating all the potential transactions in accordance with the proposed regulations. Furthermore, the IRS will need to utilize its limited resources to ensure that taxpayers are complying with the proposed regulations.”

The AICPA also had some suggestions about allocation rules, ordering and operating rules and the interaction of section 163(j) and section 108, which pertains to income from discharge of indebtedness.

The AICPA pointed out that “the TCJA substantially amended section 163(j) by placing additional limitations on the deduction of business interest expense for taxpayers and expanding the group of taxpayers to which it applies.”

The AICPA also reiterated its recommendation from earlier this month that the Treasury and the IRS provide relief to certain small businesses from the definition of a tax shelter to ensure they can qualify for some simplifying provisions for small business tax preparation under the Tax Cuts and Jobs Act.

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