IRS revises applicability of final Sec. 163(j) regs

Tax Hot Topics newsletter The IRS published the final regulations under Section 163(j) in the Federal Register on Sept. 14 with a notable revision to the language providing that taxpayers may apply them before they are effective.

As discussed in our story, “Sec. 163(j) guidance offers retroactive benefits,” the IRS released new final and proposed regulations under Section 163(j) that replaced and revised prior existing proposed regulations released in November 2018. The final regulations are effective for taxable years beginning on or after the date that is 60 days after their publication in the Federal Register. Therefore, they will not be effective for the calendar year ending Dec. 31, 2020. As stated in the Federal Register, the final regulations are generally effective on Nov. 13, 2020, and applicable to taxable years beginning on or after Nov. 13, 2020.

Before they are effective, taxpayers may apply most of the final regulations to tax years beginning after Dec. 31, 2017, so long as such taxpayers and their related parties apply them consistently in their entirety. The initial version of the final regulations released on July 28, 2020, seemed to provide that this requirement was only met for tax years beginning after Dec. 31, 2017, if taxpayers and their related parties apply them consistently in their entirety to all of those taxable years.

However, the language related to the requirement was notably altered in the Federal Register. Specifically, the Federal Register now seems to provide that the requirement is met in a taxable year if taxpayers and their related parties apply the final regulations consistently in their entirety to that taxable year.

Jeff Borghino
Washington National Tax Office
T +1 202 521 1532

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