Tennessee: Department Addresses IRC 163(j) Interest Expense Carryforwards

The Tennessee Department of Revenue recently issued guidance addressing IRC section 163(j) interest expense carryforwards for Tennessee franchise and excise tax purposes. Recall, that for tax years beginning after December 31, 2017, and before January 1, 2020, Tennessee conformed to IRC 163(j) as amended under the Tax Cuts and Jobs Act.  However, for tax years beginning on or after January 1, 2020, Tennessee decouples from section 163(j) and no longer limits the deduction for interest expense.  The Department’s guidance provides that for tax years beginning on and after January 1, 2020, a taxpayer may deduct its 2018 and 2019 business interest carryforwards to the extent the amounts are deducted for federal purposes. The carryforwards will be limited in the same manner as they are limited for federal purposes under the TCJA. Tennessee taxpayers should report the 2018 and 2019 carryforward amounts, along with current year business interest expenses, on Schedule J, Line 27a. The Department requires taxpayers that are members of a federal consolidated group to allocate the federal consolidated group’s carryforward of business interest expense for its 2018 and 2019 tax years in the same manner as the allocation of the group’s interest expense deduction for these tax years. Finally, the Department notes that taxpayers should maintain records to support the 2018/2019 carryforward amounts taken. For more information on Important Notice 20-16, please contact John Harper at 615-744-2170.