The IRS released additional final regulations on IRC Section 163(j) providing guidance to the limitation on business interest expense deductions. The final regulations expanded the 2020 Proposed Regulations by providing a number of clarifications to the Adjusted Taxable Income computation and including definitions and rules for applying the Section 163(j) limitation to controlled foreign corporations (CFCs) and to partnerships, including trading partnerships, publicly-traded partnerships, and partnership self-charged lending transactions. The 2021 Final Regulations include the following, and other updates:
Modification to the "lesser of” standard for dispositions of certain property for purposes of determining any negative adjustments to tentative taxable income with respect to depreciation, amortization and depletion deductions, including depreciation capitalized under Section 263A
Clarification of the net gain computation taken into account for purposes of the negative adjustment on a sale or disposition by consolidated groups
The proposed regulation of “conduit treatment” for RIC dividends of BII was adopted. Extending conduit treatment for REITS and REIT shareholders is under consideration.
A number of changes regarding computations of CFCs like, not reducing a CFC's adjusted taxable income (ATI) by foreign income taxes eligible for a foreign tax credit, accounting for negative adjustments in the ATI of a CFC group and providing a CFC safe harbor election to include CFCs and CFC groups with BII that is greater than or equal to business interest expense.
For companies that are limited by these rules, modeling the effect of elections and accounting methods adopted will be critical. For more detailed information about the regulations follow the link here TD 9943 (irs.gov)