N.J.A.C. 18:7-5.22 - Application of Internal Revenue Code Section 163(j)

(a) For privilege periods beginning after December 31, 2017, the interest deduction limitation in subsection (j) at I.R.C. § 163 shall apply on a pro-rata basis to interest paid to both related and unrelated parties, regardless of whether the related parties are subject to N.J.A.C. 18:7-5.18.

(b) The limitation will be applied based on the Federal rules and guidance for I.R.C. § 163(j).

(c) For privilege periods ending before July 31, 2022, the I.R.C. § 163(j) limitation is applied first, before applying the related party add backs at N.J.A.C. 18:7-5.18. To the extent N.J.A.C. 18:7-5.18 reduces the amount of interest deductible for the privilege period by an amount greater than the deduction limit set forth pursuant to the I.R.C. § 163(j) limitation, the additional disallowed amounts will be allowed to be carried over for use in a future period and deductible in the same manner as the interest that was disallowed for Federal purposes pursuant to the I.R.C. § 163(j) limitation that is permitted to be carried over and used in a future period for Federal purposes.

(d) Members of a Federal consolidated group that did not file one Federal consolidated return together, which also file separate New Jersey tax returns, must follow the Federal rules for I.R.C. § 163(j), applying the limitation to those members as each separate taxpayers.

(e) If members of a Federal consolidated group file a Federal consolidated return, the Federal rules treating the taxpayers as one entity for the purposes of applying the limitation at I.R.C. § 163(j) shall apply when determining the limitation, even though the taxpayers file a separate New Jersey return. The Federal regulations, as amended for the changes to the Internal Revenue Code, governing the application of the limitation at I.R.C. § 163(j) to Federal consolidated returns shall apply.

(f) For members of a combined group filing a New Jersey combined return, the members included on the combined return shall be treated as one single taxpayer for the purposes of applying the limitation at I.R.C. § 163(j) as though the members of a combined group were members of a Federal consolidated group that filed a consolidated return, regardless of whether such members had filed a Federal consolidated return. For more information on combined groups and combined reporting, see N.J.A.C. 18:7-21.

(g) If members of a combined group filing a New Jersey combined return are part of a Federal consolidated group with taxpayers that are not included on a New Jersey combined return and the Federal consolidated group files one Federal consolidated return, for the purposes of applying the limitation at I.R.C. § 163(j), all of the members of the Federal consolidated group filing a single Federal consolidated return will be treated as one taxpayer, even though some of the taxpayers were not included in the New Jersey combined return and filed separate New Jersey returns. For more information on combined groups and combined reporting, see N.J.A.C. 18:7-21.

(h) For corporation business tax purposes, New Jersey conforms to the CARES Act amendments and any other subsequent amendments at I.R.C. § 163(j).