IRS, Treasury Issue Guidance on Net Business Interest Expense Deductibility

With the new tax law limiting the deductibility of net business interest expense, the Treasury Department and the Internal Revenue Service today issued guidance on the calculation of the limitations and related rules, pending the formal release of proposed regulations. The guidance indicates that the agencies intend to issue further regulations clarifying that the interest expense limitation will be applied on a consolidated group level — a clarification welcomed by the American Bankers Association.

In general, businesses with gross receipts of $25 million or less are exempt from this limit under the new law; for other business taxpayers, the limitation will be based on the amount that net business interest expense exceeds 30 percent of adjusted income. Exceptions are also provided for real estate, agriculture and other businesses.

These provisions were not anticipated to affect banks directly, since banks produce net business interest income. ABA and other groups worked with policymakers to ensure that new law would be applied in a manner following the banking and other business models — that is, on a consolidated group basis.  For more information, contact ABA’s John Kinsella or Curtis Dubay.