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Second Round of Debt Interest Write-Off Proposed Rules Coming (1)

May 10, 2019, 1:18 PMUpdated: May 10, 2019, 2:18 PM

The Treasury Department has another batch of proposed rules for the 2017 tax overhaul’s debt interest deduction limit in the works, and is taking a second look at an unpopular sticking point in the first tranche, an official said.

The second package—which would follow an initial round of proposals (REG-106089-18) released in November and published in December—should be released along with the final version of the latter, said Bryan Rimmke, an attorney-adviser in Treasury’s Office of Tax Legislative Counsel, said May 10 at a conference in Washington. The second package won’t be as large or comprehensive as the original one, which was over 400 pages, Rimmke said.

The Section 163(j) rules should be released by late summer or early fall, said Charles Gorham, special counsel in the IRS Office of Chief Counsel (Income Tax & Accounting), who also spoke at the event.

  • Officials intend to include tax treatment of debt-financed distributions, among other issues, in the second batch of proposed rules, Rimmke said.
  • The government is also reexamining its decision to include guaranteed payments in its definition of interest subject to the restriction, Rimmke said.
  • “I think it’s fairly clear a policy decision was made to use a relatively broad definition of interest,” Rimmke said. “We are looking at whether it’s appropriate to tailor the definition of it.”
  • Under amended tax code Section 163(j), companies’ interest payments on debt are no longer fully deductible, and instead subject to a cap equal to 30 percent of their adjusted taxable income. The cap gets smaller starting in 2022.

—With assistance from Allyson Versprille.

(Updates with comments from Rimmke in second paragraph. )

To contact the reporter on this story: Lydia O'Neal in Washington at loneal@bloombergtax.com

To contact the editor responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Vandana Mathur at vmathur@bloombergtax.com

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