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Q：
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What is Adjusted Taxable Income (ATI)?
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A：
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Adjusted Taxable Income (ATI) is an important measure used to determine the limitation on the deductibility of business interest expense under IRC Section 163(j). ATI is generally based on the taxpayer’s taxable income, subject to certain adjustments required under the Internal Revenue Code, including adjustments for income, expenses, gains, or losses that are not properly allocable to a trade or business or that are attributable to certain excepted businesses.
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Q：
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What is Floor Plan Financing Interest?
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A：
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Floor plan financing interest generally refers to interest paid or accrued on indebtedness incurred to finance the acquisition of motor vehicles or other inventory, where the indebtedness is secured by the inventory being financed. For purposes of the applicable rules, “motor vehicles” may include automobiles, boats, and certain farm machinery or equipment.
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Q：
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What happens to business interest expense that exceeds the deduction limitation for the current tax year?
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A：
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When IRC Section 163(j) applies, business interest expense that is not deductible in the current tax year may generally be treated as Disallowed Business Interest Expense Carryforward and carried forward to subsequent tax years, subject to the applicable rules and limitations.
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Q：
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Which trades or businesses may be excepted from the IRC Section 163(j) interest deduction limitation?
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A：
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Certain trades or businesses may be excepted from the general interest deduction limitation under IRC Section 163(j), including:
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A trade or business consisting of the performance of services by an employee;
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A real property trade or business;
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A farming business;
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Certain regulated utility trades or businesses.
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Q：
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How does IRC Section 163(j) apply to a C Corporation?
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A：
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For a C Corporation, IRC Section 163(j) generally applies at the corporate level. Business interest income and business interest expense that are properly allocable to the corporation’s trade or business are generally taken into account in determining the amount of interest expense deductible under Section 163(j).
If a C Corporation has business interest expense that is disallowed for the current tax year, the qualifying disallowed amount generally may be carried forward to subsequent tax years and deducted when the applicable requirements for deductibility are satisfied.
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