Tackling Taxes: Code Sec. 163(j) Business Interest Deduction Limitation and C Corporations: Part III

Allocation of Interest and Other Items Among Excepted and Non-Excepted Trades or Businesses Proposed Reg. §1.163(j)-10(a)(4)(i) states that as provided in Proposed Reg. §1.163(j)-4(d), "all members of a consolidated group are treated as one corporation. [...]the rules of this section apply to the activities conducted by the group as if those activities were conducted by a single corporation. Analysis: The P group is treated as a single corporation. [...]the intercompany lease from P to S is disregarded. An asset is not treated as used in a trade or business if the use is derived from an intercompany transaction. [...]the lease of 50% of P's building to S is not treated as used by P in a trade or business because it is derived from an intercompany transaction and the building is considered the asset of the P group (rather than P). "Member's remaining current-year interest ratio" is, with respect to any group member, the ratio of its amount of current-year business interest expense net of business interest income and floor plan financing interest expense in relation to such total amount of all group members.14 In the case that the aggregate of all members' business interest expense exceeds the group's Code Sec. 163(j) limitation, then each member would first deduct interest expense t' -he extent of its own business interest income and floor plan financing interest expense.15 If there is still unused limitation (which is termed the "consolidated group's remaining Code Sec. 163(j) limitation" described above), each member would deduct its allocable share of the group's unused Code Sec. 163(j) limitation (which is termed the "allocable share of the consolidated group's remaining Code Sec. 163(j) limitation" described above).