New IRS Guidance Outlines Restrictions for Deductibility of Net Business Interest Expense

The IRS today proposed regulations for implementing provisions of the Tax Cuts and Jobs Act that restrict the deductibility of net business interest expense.  The rules generally apply to taxpayers with gross receipts over $25 million and restrict the deductibility of net interest expense to an amount that does not exceed 30 percent of a taxpayer’s adjusted taxable income. There are a variety of exceptions to be considered and calculations required to determine the limitation.

Since the restriction applies to net business interest expense (and banks have net business interest income), it should not apply to banks as taxpayers, but it is likely to affect certain bank customers. In addition, the proposed regulations confirm that the limitation is calculated on a consolidated tax return group basis — an important concern for banking groups with multiple legal entities and financial structures.

Comments on the proposed regulations are due in 60 days. ABA staff experts are currently reviewing the extensive 439-page proposal, and will be seeking banker feedback in the days ahead.