Final Regulations Narrow Limits on Interest Deductions but Retain Partnership and International Rules

11 August 2020
View Debevoise In Depth
Key takeaways:
  • The Treasury and the IRS have released Final Regulations and new Proposed Regulations on the limitation of deductions for net business interest expense under Section 163(j).
  • The Final Regulations limit the definition of “interest” by replacing a longer list of items that were deemed to be interest per se with more robust anti-avoidance rules, which may result in greater deductibility of business interest expense.
  • While the Final Regulations generally retain the computational system of prior proposed regulation for partnership, they provide for increased basis in connection with certain sales of partnership interests. The Proposed Regulations may also mitigate Section 163(j) when a partnership receives a loan from one of its partners.