On March 18, 2026, the Internal Revenue Service (IRS) issued Rev. Proc. 2026-17, providing transition guidance for taxpayers regarding the business interest deduction limitation under Section 163(j) of the Internal Revenue Code, particularly in light of amendments made by P.L. 119-21, commonly known as “the One Big Beautiful Bill Act,” to Sections 163(j) and 168(k) covering bonus depreciation.
Read below for specific guidance and opportunities, and keep in mind that some deadlines are approaching fast.
Key Takeaways
Rev. Proc. 2026-17 establishes a procedure that:
- Allows for the withdrawal of certain elections out of Section 163(j) that were previously irrevocable, in response to legislative changes.
- Provides a mechanism for making late elections out of bonus depreciation in connection with the withdrawal.
- Temporarily relaxes the 60-month limitation for controlled foreign corporation (CFC) group elections for a specific period.
- Offers Bipartisan Budget Act (BBA) partnerships a streamlined process for amending returns in light of these changes.
Upcoming Due Dates
All actions must be completed by the earlier of October 15, 2026, or by the expiration of the relevant statute of limitations. Prompt action is needed for any client wishing to take advantage of these opportunities on a 2022 tax return, if the statute of limitations is set to expire (broadly, three years from the date the original return was filed).
Details
This guidance is intended to help taxpayers adjust their tax positions in response to significant changes in the law affecting the business interest deduction and bonus depreciation rules. Modeling of a taxpayer's Section 163(j) limitation, bonus depreciation, etc., should be done to determine whether taking advantage of Rev. Proc 2026-17 is warranted in the near term, given potential filing deadlines for amending 2022 – 2024 tax returns.
Withdrawal of Section 163(j)(7) Elections
Taxpayers who previously made an election to be treated as an electing real property trade or business, electing farming business, or excepted regulated utility trade or business for tax years beginning in 2022, 2023 or 2024, may withdraw that election, which would allow them to depreciate property using the Modified Accelerated Cost Recovery Systems (MACRS) that was previously depreciated using the Alternative Depreciation System (ADS), as a result of having initially made the election.
The withdrawal is permitted due to changes in the law, specifically the restoration of the ability to add back depreciation, amortization, or depletion when calculating adjusted taxable income (ATI) for taxable years beginning after December 31, 2024. To withdraw the election, the taxpayer must file an amended return (or Form 1065 or administrative adjustment request (AAR) for partnerships) for the year the election was made, to include certain information and adjustments required by the Rev. Proc.
The deadline for filing is the earlier of October 15, 2026, or the end of the applicable period of limitations on assessment for the relevant year.
Late Section 168(k)(7) Election
Taxpayers who withdraw a section 163(j)(7) election and placed depreciable property in service during the relevant years may make a late election under section 168(k)(7) to opt out of bonus depreciation for any class of property affected by the withdrawn election. The late election must be made on the same amended return as the withdrawal, following the same procedural requirements and deadlines. Adjustments must be made for both the year of the election and any affected subsequent years.
CFC Group Election
Taxpayers may revoke or make a controlled foreign corporation (CFC) group election for the first specified period beginning after December 31, 2024, without regard to the usual 60-month limitation. All other procedural requirements for making or revoking a CFC group election must be followed, except for the 60-month rule, which will apply to subsequent periods.
Amended Partnership Returns (BBA Partnerships)
Eligible partnerships subject to the centralized partnership audit regime (BBA partnerships) may file an amended Form 1065 and furnish amended Schedules K-1 for tax years beginning in 2022, 2023 or 2024, instead of filing an AAR.
The amended return must be clearly marked as filed under Rev. Proc. 2026-17 and must be filed by the same deadlines as above. Partnerships under examination must notify the revenue agent and provide a copy of the amended return upon filing.
Your Guide Forward
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