Today, the IRS released proposed regulations (REG-106089-18) on the interest expense limitation under Section 163(j), which was modified in December 2017 by the law commonly known as the "Tax Cuts and Jobs Act." The proposed regulations package also includes proposed regulations under Sections 381, 382, 383, 469, 860C and 1502.

The proposed regulations include provisions on:

• What constitutes interest for purposes of Section 163(j)
• The interaction of the Section 163(j) limitation with other provisions of the Code
• The application of Section 163(j) to consolidated groups, partnerships, S corporations, controlled foreign corporations and foreign persons with effectively connected income
• The treatment of disallowed business interest expense carryforwards
• Making available elections under Section 163(j)
• The allocation of interest expense, interest income and other tax items when the taxpayer conducts a trade or business that is not subject to Section 163(j), as well as a trade or business that is subject to Section 163(j)

With the proposed regulations, the IRS also released: (1) frequently asked questions about the Section 163(j) limitation; and (2) Revenue Procedure 2018-59, which provides a safe harbor under which taxpayers may treat certain infrastructure trades or businesses as real property trades or businesses solely for purposes of qualifying as electing real property trades or businesses under Section 163(j)(7)(B).

Tax Alerts on the proposed regulations and other guidance are forthcoming. An invitation to an upcoming webcast on the proposed regulations will be sent soon.