Ability to revoke 163(j) elections may benefit some taxpayers

Impact of the OBBBA

The change in law under the OBBBA may impact the analysis of whether to make these elections by:

1. Restoring the depreciation and amortization addback to computing ATI for taxable years beginning after Dec. 31, 2024 (i.e., ATI will again be tax-basis EBITDA), and
2. Making 100% bonus depreciation permanent for qualifying property acquired and placed in service after Jan. 19, 2025.

As a result, many taxpayers that previously made these elections may now find that the ability to claim bonus depreciation outweighs the benefit of avoiding the interest expense limitation.

Withdrawal of prior elections

Rev. Proc. 2026-17 permits certain taxpayers to withdraw a prior RPTB, electing farming business, or excepted regulated utility trade or business election for taxable years beginning in 2022, 2023 or 2024. To be eligible, a taxpayer must have originally made the election on a timely filed (including extensions) federal income tax return or Form 1065.

If the election is properly withdrawn:

• The taxpayer is treated as if the election had never been made.
• Taxable income, interest deductions, depreciation and basis must be recomputed for the affected year and all subsequent years impacted by the election.

To withdraw an election, an eligible taxpayer must file an amended federal income tax return on or before the earlier of Oct. 15, 2026, or the end of the applicable period of limitations on assessment for the taxable year for which the amended return is being filed (typically three years from filing). The taxpayer must attach a statement to the amended return for the affected year and all subsequent years that are required to be amended.

Partnerships subject to the centralized partnership audit regime enacted under the Bipartisan Budget Act of 2015 (BBA partnerships) may file an amended Form 1065 instead of an administrative adjustment request (AAR) if the BBA partnership filed a Form 1065 and furnished Schedules K-1 to its partners prior to the issuance of the revenue procedure for tax years beginning in 2022, 2023 or 2024.

The amended Form 1065 must be filed with the IRS and amended Schedules K-1 must be furnished to its partners by the earlier of the statute of limitations expiration date (typically three years from filing) or Oct. 15, 2026.

The AAR or amended Form 1065 may take into account tax changes provided by this revenue procedure and any other tax benefits to which the partnership is entitled by law. An eligible BBA partnership that receives an amended Schedule K-1 from another partnership can also file an amended Form 1065 pursuant to the revenue procedure.

Finally, taxpayers withdrawing one of these Section 163(j) elections may make a late election under Section 168(k)(7) to opt out of bonus depreciation for classes of property affected by the withdrawal. This provision is intended to mitigate unintended depreciation consequences resulting from retroactive recomputations.

Revocation of CFC group election

Similar to revoking the above elections, Rev. Proc. 2026-17 generally permits a taxpayer to revoke an existing CFC group election or make a new CFC group election for the first specified period of a specified group beginning after Dec. 31, 2024, without regard to the usual 60-month limitation in Treas. Reg. Section 1.163(j)-7(e)(5)(ii). This effectively gives multinational groups a one-time opportunity to revisit a prior CFC group decision in the post-OBBBA Section 163(j) environment, including the exclusion of Sections 951(a), 951A(a), and 78 inclusions from ATI.