IRS gives guidance on business interest expense limits under TCJA

The Internal Revenue Service and the Treasury Department released new guidance Monday on computing the business interest expense limitation under the new Tax Cuts and Jobs Act.

In the recent tax overhaul, Congress amended section 163(j) of the tax code to impose a limitation on deductions for business interest incurred by many big businesses. For most large companies, the business interest expense is limited to any business interest income, plus 30 percent of their adjusted taxable income.

The new Notice 2018-28 explains aspects of the regulations that the Treasury and the IRS plan to hand down, including rules pertaining to the calculation of the business interest expense limitation at the level of a consolidated group of corporations, along with other rules to clarify certain aspects of the law as it applies to corporations.

The notice discusses the treatment of interest disallowed and carried forward under section 163(j) before enactment of the new tax law. On top of that, the notice makes it clear that partners in partnerships and S corporation shareholders can’t interpret the recently modified section 163(j) to inappropriately “double count” the business interest income of a partnership or S corporation.

Monday’s notice asks for comments on the proposed rules, along with comments on what other guidance should be issued to help taxpayers figure the business interest expense limitation under section 163(j). The Treasury and the IRS anticipate releasing more guidance in the future on the subject.

Separately on Monday, the American Institute of CPAs asked the IRS and the Treasury Department for more guidance on a related matter involving the new tax law’s restrictions on companies’ deducting of expenses for meals, entertainment and transportation (see AICPA wants IRS guidance on meals and entertainment deduction).

A man walks past the IRS headquarters in Washington, D.C.
The IRS headquarters in Washington, D.C.

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