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Federal Free Printable Instructions for Form 8926 (Rev. December 2018) for 2020 Federal Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information

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Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information
Instructions for Form 8926 (Rev. December 2018)

Instructions for Form 8926 Department of the Treasury Internal Revenue Service (Rev. December 2018) (Use with the December 2017 revision of Form 8926) Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information Section references are to the Internal Revenue Code unless otherwise noted. Future Developments For the latest information about developments related to Form 8926 and its instructions, such as legislation enacted after they were published, go to IRS.gov/Form8926. What’s New Disqualified corporate interest expense. Public Law 115-97, repealed the disqualified corporate interest expense rules for tax years beginning after 2017. Form 8926 and its instructions will be obsolete for tax years beginning after 2017. For disqualified corporate interest expense disallowed under prior law for tax years beginning before 2018, and Business Interest Expense for tax years beginning 2018 and after, see Form 8990, Limitation on Business Interest Expense Under Section 163(j) and its instructions. See new section 163(j) for more information. General Instructions Purpose of Form Corporations use Form 8926 to figure the amount of any corporate interest expense deduction disallowed by section 163(j). A corporation's interest expense deduction may be disallowed if it paid or accrued disqualified interest during the tax year. However, if at least one of the following statements is true, disqualified interest which the corporation has actually paid or accrued in the current tax year will not be disallowed by section 163(j). • The corporation's debt-to-equity ratio at the end of the tax year does not exceed 1.5 to 1. • The corporation does not have any excess interest expense for the tax year. Corporations also use Form 8926 to figure the amount of any interest expense deduction disallowed by section 163(j) for a previous tax year that is allowed for the current tax year. Oct 22, 2018 Who Must File A corporation (other than an S corporation) must complete and file Form 8926 if it paid or accrued disqualified interest during the current tax year or had a carryforward of disqualified interest from a previous tax year. A corporation must complete and file Form 8926 even if it meets the debt-to-equity safe harbor of section 163(j)(2)(A)(ii). Disqualified Interest Disqualified interest is: • Interest paid or accrued (directly or indirectly) to a related person not subject to U.S. income tax on the interest, • Interest paid or accrued on indebtedness held by an unrelated person if there is a disqualified guarantee of the indebtedness and the interest is not subject to a U.S. gross basis income tax (a tax figured on the gross amount of an item of income without reduction for any allowed deduction), and • Interest paid or accrued (directly or indirectly) to a taxable real estate investment trust (as defined in section 856(l)) by a subsidiary of the trust. Also, any disqualified interest disallowed as a deduction by section 163(j) in a tax year is carried forward and treated as disqualified interest paid or accrued in the next tax year. Related Person A related person is a person who is related to the corporation under sections 267(b) or 707(b)(1). For this purpose, the attribution rules of section 267(c) apply. In determining whether persons are related, the substance of ownership, rather than its form, controls. You determine relatedness as of the date on which an item of interest expense accrues. Consequently, changes in the relationship between the payor corporation and the payee after the accrual date are irrelevant. Partnerships. A partnership is not a related person if less than 10% of the Cat. No. 51518B profits and capital interest in the partnership are held by partners not subject to U.S. income tax on the interest. However, the partners may be related persons. If a treaty between the United States and a foreign country reduces the rate of income tax imposed on a partner's share of any interest paid or accrued to a partnership, that partner's interests in the partnership are treated as held in part by a person subject to and in part by a person not subject to U.S. income tax on the interest. In this situation, figure the interest treated as held by a partner not subject to U.S. income tax by multiplying the interest by: • The rate of tax imposed without regard to the treaty, reduced by the rate of tax imposed by the treaty, divided by • The rate of tax imposed without regard to the treaty. Pass-Through Entities In the case of any interest paid or accrued to a partnership, the determination of whether any tax is subject to U.S. income tax is made at the partner level. A similar rule applies in the case of other pass-through entities and in the case of tiered partnerships and other entities. Treaties If a treaty between the United States and a foreign country reduces the rate of income tax imposed on the interest paid or accrued to a person, the interest is treated as paid or accrued in part to a person subject to and in part to a person not subject to U.S. income tax on the interest. In this situation, figure the interest treated as paid or accrued to a person not subject to U.S. income tax on the interest by multiplying the interest by: • The rate of tax imposed without regard to the treaty, reduced by the rate of tax imposed by the treaty, divided by • The rate of tax imposed without regard to the treaty. Disqualified Guarantee Excess Interest Expense A guarantee includes any arrangement under which a person (directly or indirectly through an entity or otherwise) assures, on a conditional or unconditional basis, the payment of another person's obligation under any indebtedness. A corporation's excess interest expense is the excess (if any) of: • The corporation's net interest expense, over • The sum of 50% of the adjusted taxable income of the corporation plus any excess limitation carryforward. A disqualified guarantee is generally a guarantee by a related person that is a tax-exempt organization or a foreign person, unless the corporation owns a controlling interest in the tax-exempt organization or foreign person. A corporation's excess limitation is the excess (if any) of: • 50% of the adjusted taxable income of the corporation, over • The corporation's net interest expense. For this purpose, a controlling interest is direct or indirect ownership of at least 80% of the total voting power and value of all classes of stock of a corporation, or 80% of the profit and capital interests in any other entity. For this purpose, the rules of paragraphs (1) and (5) of section 267(c) apply to both corporations and entities other than corporations. Any excess limitation in a tax year is treated as an excess limitation carryforward to the first following tax year and, if unused in that tax year, similarly carried forward to the second and third following tax years. However, the carryforward that can be used in each of the following tax years cannot exceed the excess interest expense for that tax year (figured without the use of any excess limitation carryforward). Additionally, no excess limitation from a tax year beginning on or before 2017, may be carried forward to a tax year beginning after 2017. Affiliated Groups All members of an affiliated group (described in section 1504(a)) are treated as one corporation. Ratio of Debt-to-Equity Corporate Partners A corporation's ratio of debt to equity is the ratio of the total indebtedness that the corporation bears to the sum of its money and the adjusted basis of all other assets reduced (but not below zero) by the total indebtedness. For this purpose, use the adjusted basis that would be used to determine gain. Also, for indebtedness with original issue discount (OID), use its issue price plus the portion of the OID previously accrued as determined under the rules of section 1272 (determined without regard to section 1272(a)(7) or (b)(4)). If a corporation owns (directly or indirectly) an interest in a partnership, the following rules apply. • The corporation's distributive share of interest income paid or accrued to the partnership is treated as interest income paid or accrued to the corporation. • The corporation's distributive share of interest paid or accrued by the partnership is treated as interest paid or accrued by the corporation. • The corporation's share of the liabilities of the partnership is treated as liabilities of the corporation. Indebtedness. Debt is determined in accordance with generally applicable tax principles. Thus, in general, a contingent liability for financial accounting purposes that has not accrued for tax purposes will not be treated as a liability for purposes of section 163(j). Passive Activity and At-Risk Rules Net Interest Expense A corporation's net interest expense is the excess (if any) of: • The interest paid or accrued by the corporation during the tax year, over • The interest includible in the gross income of the corporation for the tax year. Section 163(j) is applied before the passive activity and at-risk rules. Other Interest Limitations Other sections limiting the deductibility of interest, such as sections 267(a)(3) and 163(e)(3), apply before section 163(j). Specific Instructions Affiliated Group Checkbox A single form must be filed for all members of an affiliated group as defined in section 163(j)(6)(C), including -2- those that are not members of the same consolidated group. Line 1d Enter the total amount of the corporation's indebtedness as of the last day of the tax year. Enter all indebtedness owed to related parties and all indebtedness owed to third parties. For more information, see Ratio of Debt-to-Equity, earlier. Line 1f. Debt-to-Equity Ratio Divide line 1d by line 1e. Divide the total amount of the corporation's indebtedness as of the last day of the tax year by the sum of money and adjusted basis of all the corporation's other assets reduced by the total indebtedness. Enter the results as a decimal (rounded to five decimal places). Example 1. Corporation A is a calendar year corporation. At the end of 2017, Corporation A's money totaled $300,500. The adjusted basis of the corporation's other assets totaled $574,500. Corporation A's total indebtedness at the end of 2017 is $525,000. The debt-to-equity ratio for Corporation A is 1.50000. Example 1: Money . . . . . . . . . . Plus: Adjusted basis of all other assets . . . . . . . Total . . . . . . . . . . . Minus: Total indebtedness . . . . . . Corporation A's equity . . . $300,500 . . 574,500 . . $875,000 . . 525,000 . . $350,000 Calculation of Corporation A's debt-to-equity ratio: Corporation A's total indebtedness . . . . . . . . . $525,000 Divided by: Corporation A's 350,000 equity . . . . . . . . . . . . . Corporation A's debt-to-equity ratio (Form 8926, 1.50000 line 1f) . . . . . . . . . . . . Note. Since the debt-to-equity ratio does not exceed 1.5 to 1, disqualified interest paid or accrued in the current tax year will not be disallowed by section 163(j). Example 2. Corporation B is a calendar year corporation. At the end of 2017, Corporation B's money totaled $400,000. The adjusted basis of the corporation's other assets totaled $599,950. Corporation B's total indebtedness at the end of 2017 is $600,020. The debt-to-equity ratio for Corporation B is 1.50031. Example 2: Money . . . . . . . . . . Plus: Adjusted basis of all other assets . . . . . . . Total . . . . . . . . . . . Minus: Total indebtedness . . . . . . Corporation B's equity . . . $400,000 . . 599,950 . . $999,950 . . 600,020 . . $399,930 Calculation of Corporation B's debt-to-equity ratio: Corporation B's total indebtedness . . . . . . . . . $600,020 Divided by: Corporation B's 399,930 equity . . . . . . . . . . . . . Corporation B's debt-to-equity ratio (Form 8926, line 1f) . . . . . . . . . . . . 1.50031 Note. Since the debt-to-equity ratio exceeds 1.5 to 1, disqualified interest paid or accrued in the current tax year will be disallowed by section 163(j) to the extent of the corporation's excess interest expense for the tax year. Line 1i Enter all assets that are directly owned by the corporation, including assets held through a partnership or trust. Note. Partnerships and simple trusts are treated as aggregates. Line 2a Interest paid or accrued by the corporation for the tax year includes any disqualified interest disallowed under section 163(j) in a previous year which has been carried forward to the current tax year. Line 3b Include only the allowable net interest expense on line 3b to determine adjusted taxable income. Do not include the following interest on line 3b, unless such amounts were deducted in determining taxable income on line 3a. 1. Any interest that the corporation paid or accrued but was not allowed to claim as an interest expense deduction under another code section. 2. Any disqualified interest disallowed under section 163(j) in a previous year which has been carried forward to the current tax year. amount in a subsequent year. If not, it can be carried forward indefinitely. Line 3f Line 8c. Excess Limitation Carryforward to the Next Tax Year Enter any additional adjustments the corporation has made to its taxable income (loss) in arriving at its adjusted taxable income under section 163(j)(6). Attach to your return a separate sheet showing: • A list of each adjustment item and the amount for each adjustment item, and • The total of all adjustments at the bottom. Enter the total of all adjustments on line 3f. Line 4b Enter the amount of any unused excess limitation carried forward (if any) from the corporation's first preceding tax year and, to the extent not previously taken into account in a prior tax year, the second and third preceding tax years. Lines 5a through 5c. The amount of interest entered on line 5a, 5b, or 5c is the disqualified interest that was actually paid, deemed paid, or accrued in the current tax year. The amounts entered on line 5a, 5b, or 5c, however, should not include any disqualified interest that was paid or accrued in a prior tax year and carried forward to the current tax year. Line 7. Interest Deduction Disallowed Under Section 163(j) and Carried Forward to the Next Tax Year The amount entered on line 7 is the amount of the corporation's interest deduction that is disallowed under section 163(j) and carried forward to the next tax year. If the debt-to-equity ratio on line 1f is 1.5 or less, enter the smaller of the excess interest expense from line 4d or the disqualified interest disallowed under section 163(j) from prior years from line 5e. If the debt-to-equity ratio on line 1f is greater than 1.5, enter the smaller of the excess interest expense from line 4d or the total disqualified interest from line 5f. Any interest expense disallowed under section 163(j) should not be included as a deduction in the current tax year. The corporation may be allowed by section 163(j) to deduct the disallowed -3- If the corporation has an excess limitation for any taxable year, the amount of such excess limitation shall be an excess limitation carryforward to the first succeeding tax year and to the second and third succeeding tax years to the extent not previously taken into account in a prior tax year. Add lines 8a and 8b. This is your excess limitation carryforward to your next tax year. Generally, this will be the amount you will enter on line 4b of Form 8926 in the following tax year. However, no excess limitation from a tax year beginning on or before 2017, may be carried forward to a tax year beginning after 2017. Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103. The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden for business taxpayers filing this form is approved under OMB control number 1545-0123 and is included in the estimates shown in the instructions for their business income tax return. If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. See the instructions for the tax return with which this form is filed.
Extracted from PDF file 2019-federal-form-8926.pdf, last modified October 2018

More about the Federal Form 8926 Estate Tax TY 2019

Only available for 2018.

We last updated the Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information in March 2020, so this is the latest version of Form 8926, fully updated for tax year 2019. You can download or print current or past-year PDFs of Form 8926 directly from TaxFormFinder. You can print other Federal tax forms here.

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1041 (Schedule I) Alternative Minimum Tax - Estates and Trusts
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Form Sources:

The Internal Revenue Service usually releases income tax forms for the current tax year between October and January, although changes to some forms can come even later. We last updated Federal Form 8926 from the Internal Revenue Service in March 2020.

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About the Estate Tax

The IRS, and many states, impose an estate tax on the transfer of cash and property between a decedent and their beneficiaries. These taxes generally only apply to estates over a certain size threshold, generally several million dollars, and therefore only affects the largest few percent of estates in the United States.

Historical Past-Year Versions of Federal Form 8926

We have a total of seven past-year versions of Form 8926 in the TaxFormFinder archives, including for the previous tax year. Download past year versions of this tax form as PDFs here:


2019 Form 8926

Instructions for Form 8926 (Rev. December 2018)

2018 Form 8926

Form 8926 (Rev. December 2017)

2017 Form 8926

Form 8926 (Rev. December 2017)

2016 Form 8926

Form 8926 (Rev. December 2011)

Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information 2015 Form 8926

Form 8926 (Rev. December 2011)

Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information 2012 Form 8926

Form 8926 (Rev. December 2011)

Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information 2011 Form 8926

Form 8926 (Rev. December 2011)


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