Recent Developments: New Rules on IRS Reform and Business Interest.

• Author: Josephs, Stuart R.
• Position: Fed Tax

On July 1, President Trump signed into law the Taxpayer First Act (H.R. 3151)--dealing primarily with IRS reform and reorganization. However, other provisions include:

1. Increased late-filing penalties;

2. Authorizing credit card payments;

3. Lower threshold lor filing electronic information returns; and

4. Uniform electronic signature requirements.

   Limitation on Deductible Business Interest Expense

   For tax years beginning after 2017, the 2017 Tax Cuts and Jobs Act (P.L. 115-97 enacted Dec. 22, 2017) substantially amended old IRC Sec. 163(j) to limit the deduction of business interest expense for all taxpayers for any tax year to the sum, for that tax year, of:

1. The taxpayer's business interest income;

2. 30 percent of the taxpayer's adjusted taxable income (ATI); and

3. The taxpayer's floor plan financing interest expense.

   Any business interest expense not allowed as a deduction for any tax year may be carried forward indefinitely.

   This limitation applies at the taxpayer level. However, there is a special carryforward rule for partnerships (discussed below). For affiliated corporations filing a consolidated return, the limitation applies at the consolidated return level.

   Proposed regulations (REG-106089-18) were published Dec. 28, 2018. Also, the IRS released Form 8990 [(Dec. 2018), Limitation on Business Interest Expense under Sections 163(j)] to be attached to tax returns.

   Business Interest

   Business interest expense means any interest paid or accrued on debt properly allocable to a trade or business. Any amount treated as interest for IRC purposes also is interest for Sec. 163(j) purposes.

   Business interest income is the interest includible in the taxpayer's gross income for the tax year, which is properly allocable to a trade or business.

   Business interest income and expense do not include investment interest income and expense within the meaning of existing Sec. 163(d), which only applies to non-corporate taxpayers. Thus, corporation has neither investment interest income nor expense under Sec. 163(d). Consequently, a corporation's interest income and expense are properly allocable to a trade or business unless such trade or business is otherwise explicitly excluded from Sec. 163(j)'s application.

   Example: If an insurance company, for regulatory (i.e., statutory accounting) purposes, has both underwriting income and expense and investment interest income and expense, any interest income and expense is business interest income and expense...