Pennsylvania: Philadelphia Department of Revenue addresses IRC 163(j) limitation

The Philadelphia Department of Revenue recently issued an updated advisory notice addressing the calculation of the IRC section 163(j) interest expense limitation for purposes of the Philadelphia Business Income and Receipts Tax (BIRT). The notice provides that the calculation of the limitation should be consistent with the Pennsylvania Department of Revenue’s guidance on IRC section 163(j). Specifically, if a BIRT corporate taxpayer that uses Method II (computes tax on net income with reference to federal taxable income) files a federal consolidated return and if the federal consolidated group reports an interest limitation under section 163(j), the corporate taxpayer must determine its IRC section 163(j) limitation on a separate entity basis.  This calculation is computed without elimination of related party receipts. Further, the taxpayer must determine on a separate entity basis whether it has sufficient gross receipts to meet the requirements of IRC section 163(j). In other BIRT news, Mayor Kenney recently signed Bill No. 190358, which provides that for tax years 2020 and thereafter, a business will not have to file a BIRT return if the business’ taxable Philadelphia gross receipts in any given year are $100,000 or less. It should be noted that if a return is not filed for a tax year, the statute of limitations does not begin to run. For more information on Advisory Notice No. 2 or the BIRT in general, please contact Howard Sklaroff at (267)256-2891[SM1] .