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#TaxTwitter - #163j interest limitations are quite complex. Check out this @PWCtax insight for a very comprehensive discussion of several matters. Has some really helpful takeaways in particular regarding K-1 reporting. Some highlights follow. pwc.com/us/en/services… 1/X
Remember that there were already #163j proposed regs issued, way back in 1991. Those were never finalized. Here’s hoping this time Treasury moves a bit quicker. 2/X
Treasury has defined interest quite broadly, among other items guaranteed payments for use of capital is considered interest. Remember guaranteed payments for use of capital are also not QBI under #199A. 3/X
The 11 step process for allocations to partners of ATI, deductible and excess business interest expense, and business interest income is (surprise) quite complicated. However, if items are allocated pro-rata, life is much easier. 4/X
Remember that 734 basis adjustments (generally resulting from redemptions) are considered in computing partnership ATI. But partner specific adjustments from 743 (cross purchase) or remedial allocations under 704 are not considered at the partnership level. 5/X
The proposed regulations do not provide guidance on tiered relationships (lower tier partnerships). Treasury reserved guidance here and is asking for comments. PWC provides a practical approach in this article given the lack of guidance. 6/X
For C corporations, investment items such as interest income from working capital ARE considered to be business interest income and will therefore help with the interest limit. Partnerships passing out information to C corporation partners need to be aware of this. 7/X
New Form 8990 is required to be filed if the partnership has excess taxable income or business interest income regardless of having any interest expense. BUT the form will not be needed if the pship meets the small business exception or is an excepted trade or business. 8/X
However, even a partnership that fits under the small business exception and doesn’t need to file Form 8990, still has K-1 reporting responsibilities. Items such as the partner’s share of ATI, business interest expense, and business interest income should still be reported. 9/X
This K-1 reporting is necessary in case the individual partner is subject to #163j at the partner level. See chart included with the article attached. Great information here. 10/X 
Remember the $25 million gross receipts test is the average of the prior 3 years. Therefore, this information would need to be reported on the K-1 so that each partner could make a separate determination of the limit at the individual level. 11/X
The proposed regs indicate that investment income is included in an individual taxpayer’s gross receipts. However, items such as wages are not. Presumably then, investment income of the partnership is considered in the partnership $25 million calculation. 12/X
It’s not even simple for “normal” trade or business gross receipts that need passed out on the K-1. The @PwcTax article points out that you would need to consider the gross receipts embedded in the computation of net income in boxes 1 through 3 and box 11 for example. 13/X
And remember the special rule for tax shelters. In general if more than 35% of the losses of the entity are allocable to limited partners or limited entrepreneurs, #163j applies. This is despite the entity having less than $25 million in gross receipts. 14/X
The article points out that losses from non trade or business activities would not count toward the presence of a tax shelter loss. Gains or losses from the sale of capital assets would not be factored in. Be careful of capital gains “covering” ordinary (tax shelter) losses. 15/X
In summary a very well done article reminding us about the proposed #163j regs. With the public hearing set for the end of the month, it will be interesting to see the comments as practitioners struggle with how and when to report items on K-1s in particular. 16/16
Interesting that according to the proposed regs, guaranteed payments are not the same as salaries. Revenue Ruling 69-187 is cited. So apparently guaranteed pymts would count toward the $25 million individual threshold whereas wages would not.
