Massachusetts: Working Draft Issued on Computing 163(j) Limitation

On October 3, 2019, the Massachusetts Department of Revenue issued a working draft Technical Information Release addressing the computation of the 163(j) limitation for Massachusetts corporate excise tax purposes. The draft TIR confirms that taxpayers filing a separate Massachusetts corporate excise tax return will compute the Business Interest Expense (BIE) limitation on a separate entity basis, including whether the small business exemption applies. For combined filers, each entity that is a member of the combined group must first calculate its Massachusetts BIE and BIE limitation on a separate entity basis before sharing its excess BIE at the combined group level. Specific steps are provided for determining the BIE deduction for the combined group and calculation of the BIE carryforward if a member leaves or joins a Massachusetts combined group. The draft TIR also addresses how the 163(j) limitations interact with Massachusetts’ related party interest addback rules. When an add back is required, the Massachusetts deduction for BIE should be determined using the rules set forth for in the TIR, after first reducing current year BIE by the amount of the required add back. Any amount of BIE that is disallowed due to a Massachusetts add back may not be deducted or carried forward. Numerous examples are provided to explain the rules set forth in the TIR. The Department is accepting comments from practitioners on the draft TIR. Please stay tuned to TWIST for future tax reform related updates.