On 2 April 2018, the Treasury Department and the Internal Revenue Service (IRS) published Notice 2018-28, which provides guidance for computing the business interest expense limitation under recent tax legislation enacted on Dec. 22, 2017. In general, newly amended section 163(j) of the Internal Revenue Code imposes a limitation on deductions for business interest incurred by certain large businesses. For most large businesses, business interest expense is limited to any business interest income plus 30% of the business’ adjusted taxable income.
The notice describes aspects of the regulations that the Treasury Department and the IRS intend to issue, including rules addressing the calculation of the business interest expense limitation at the level of a consolidated group of corporations and other rules to clarify certain aspects of the law as it applies to corporations. The notice clarifies the treatment of interest disallowed and carried forward under section 163(j) prior to enactment of the recent tax legislation. Finally, the notice makes it clear that partners in partnerships and S corporation shareholders cannot interpret newly amended section 163(j) to inappropriately “double count” the business interest income of a partnership or S corporation.
The IRS asked for comments on the rules described in the notice and asked for comments on what additional guidance should be issued to assist taxpayers in calculating the business interest expense limitation under section 163(j).
