Section 163(j) and Form 8990 (1120)

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Overview

This article provides information about how UltraTax/1120 calculates Form 8990, Limitation on Business Interest Expense Under Section 163(j).

Section 163(j)

IRC section 163(j) was amended under the 2017 Tax Cuts and Jobs Act (TCJA) to reflect a new limitation on the deduction for business interest expense for certain taxpayers in tax years beginning after 2017. Visit this IRS resource for answers to common questions surrounding this new limitation: Basic questions and answers about the limitation on the deduction for business interest expense External link. (What's this?)

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Form 8990

The new section 163(j) business interest expense deduction and carryover amounts are reported on Form 8990. The form calculates the section 163(j) limitation on business interest expense in coordination with other limits.

Form 8990 will print if the average annual gross receipts, less returns and allowances, from the prior three years is $25 million or greater or if the corporation is a tax shelter. The form will also print if you have received excess business interest expense from a partnership. Excess business interest expense is reported on the Schedule K-1, line 13K.

Business interest income

Business interest income is one of the factors in determining the amount of allowable business interest expense.

The Interest income fields on Screen Inc and Screen K are presumed to be portfolio income, which is not the same as business interest income. You will need to enter the corporation’s business interest income in Screen 8990 to properly calculate the allowable business interest expense.

Business interest expense

Enter business interest expense, not including floor plan financing interest, in the Business interest expense subject to limitation field in Screens Inc, F-2, 4835-2, and/or Rent. UltraTax/1120 sums the amounts entered in those fields and transfers the total to Form 8990, line 1.

Disallowed interest expense

The interest expense limitation is calculated at the consolidated level, so preparing Schedule M-3 in the consolidated return may cause the return to be out of balance. Based on the Schedule M-3 instructions, an adjustment made at the consolidated level that is not attributable to any specific member should be reported on the consolidated Schedule M-3 and the eliminations client Schedule M-3.

  1. Open Screen M3-3 in the Balance sheet folder.
  2. Enter an item in the Other expense, deduction items with differences statement dialog for Disallowed interest expense.
  3. Enter the amount of the disallowed interest expense as a negative number in the Temporary difference column.
  4. Open Screen M3-2 and enter 0 (Zero) in the Other items with no differences field.

Filing Form 8990 for a foreign corporation

Enter business interest expense, allocable to effectively connected income (ECI) under Regulation 1.882-5, in the Business interest expense subject to limitation field in Screen IntDed in the 1120F folder. The amount entered in this field should also be adjusted for any capitalizations, deferrals and disallowances that apply before the section 163(j) interest expense limitation.

UltraTax/1120 transfers the amount entered in this field to Form 8990, line 1.

Calculating adjusted taxable income

Perform the following steps to force the application to calculate taxable income, as well as other amounts for Form 8990.

If you change, add, or remove any data after performing these steps, you will need to repeat the process to capture the updated information.

  1. Complete all data entry in the return.
  2. Enter 1 in the Use calculated amounts on Form 8990 field on Screen 8990.
  3. Choose View > Form, or print preview the return.
  4. Enter 2 in the Use calculated amounts on Form 8990 field on Screen 8990.

Once you complete these steps, the application calculates the following amounts as if the business interest expense was deducted in full.

Exceptions for filing Form 8990

Certain trades or businesses may elect out of the section 163(j) limitation by filing an election under section 1.163-9 on Screen Elect in the Election folder. If the taxpayer’s only interest expense is from an excepted trade or business, you are not required to file Form 8990.

For information on what types of trades or business may elect out of the section 163(j) limitation, refer to the Form 8990 instructions External link or 1120-US: Excepted trade or business under Section 163(j).

A small business taxpayer is not a tax shelter, and has average annual gross receipts, less returns and allowances, from the prior three years totaling less than $25 million.

  • Enter the corporation’s prior gross receipts, less returns and allowances, in the Corporation’s net receipts fields in Screen 8990. If the tax year was a short year, enter the number of months in the Months in the short year field.
  • If the corporation is a member of a controlled group, enter the annualized amounts of gross receipts, less returns and allowances, from all members of the controlled group in the Related entities net receipts fields. The net receipts must be aggregated for members of a group of businesses under common control. Refer to Form 8990 instructions for other examples where gross receipts must be aggregated for the gross receipts test.

UltraTax/1120 automatically updates the corporation’s small business net receipt fields, based on the data entered in the Net receipts fields on Screen History when possible.

If the corporation meets the conditions for a small business taxpayer and does not receive a 1065 Schedule K-1 with code 13K (Excess business interest expense), the corporation is not required to file Form 8990. The interest expense is allowed as a deduction in full.

If a small business taxpayer has received excess business interest expense from a partnership, they are required to file Form 8990 and the business interest expense could be limited.

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