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1 1 (June 01, 2020)

handle is hein.crs/govdauw0001 and id is 1 raw text is: Researh Sevice Limits on Business Interest Deductions Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act Updated June 1, 2020 Thin capitalization rules, broadly, limit the amount of debt that can generate deductible interest for the purpose of calculating taxable income. Limits on the tax deduction for business interest restrictions have been relaxed by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748, as amended) providing economic stimulus and relief for taxpayers due to the expected slowdown of the economy because of the coronavirus pandemic. These restrictions, also referred to by their Internal Revenue Code Section 163(j), were expanded by the 2017 tax revision, P.L. 115-97. Changes in P.L. 115-97, Popularly Known as the Tax Cuts and Jobs Act (TCJA) Restrictions on net interest deductions were significantly tightened in the 2017 tax legislation. Taken as a whole, the tax revision was a tax cut, although a number of provisions were enacted to limit certain deductions, among them the restrictions on interest deductions. Rules Prior to TCJA Prior to the TCJA, the thin capitalization rules were narrowly focused and limited. They applied only to corporations and only to interest paid to related parties. Their objective was largely to limit earnings stripping by multinational corporations that located debt in the United States. Even so, the rules could be viewed as relatively liberal. They applied only to firms whose debt to equity ratio exceeded 1.5 to 1. Interest deductions were limited to 50% of earnings before interest, taxes, depreciation, amortization, and depletion (EBITDA). Disallowed deductions could be carried forward for three years. Proposals to further restrict the thin capitalization rules had been made for some time to address corporate inversions, in which firms shifted their headquarters to a foreign country in order to reduce profits in the United States, in some cases by earnings stripping through locating debt in the United States. Congressional Research Service https://crsreports.congress.gov IN11287 CRS NStGHT Prepaimed for Mernhe-s amd Committees oi C- --q.. . . . . . . . . ..----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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