Question About IRC 163(j) - EBIE Calculation and Reporting from Lower Tier Partnership

The Section 163(j) rules for partnerships are definitely complex, especially with multi-tiered structures. Let me help clarify: (1) You're correct - future deductibility of EBIE from a lower-tier partnership depends on that lower-tier partnership generating excess taxable income (ETI) in future years. The EBIE remains suspended at the partner level until the originating partnership generates ETI. When that happens, the EBIE becomes deductible and flows up as additional interest expense, reducing ordinary income on the K-1. (2) Yes, when a partnership receives EBIE on a K-1 (line 13k), it reports this on Form 8990 Schedule A as a carryforward. This tracks the EBIE at the partner level since it doesn't impact current taxable income. (3) When EBIE becomes deductible, it increases the partner's interest expense deduction, which flows through to reduce ordinary income. Schedule A is important because it tracks the EBIE carryforward from year to year. And yes, when EBIE becomes deductible, it's reported on Form 8990, page 1, line 3, which impacts the calculation of current year limitation. (4) That's exactly right. In the year EBIE is created, you decrease interest expense by $130k and increase line 13k by $130k, keeping taxable income unchanged. Line 13k is a separately stated item, not a current deduction. (5) When EBIE becomes deductible, it's an increase to interest expense via M-1 adjustment. Line 13k would be zero (or reduced by the amount now allowed). It's considered a permanent M-1 because the timing difference is between partnerships, not between book and tax within the same entity.

Hey everyone, I struggled with similar 163(j) issues last year with our tiered partnership structure. After going in circles with multiple CPAs, I finally found an amazing resource that answered all my EBIE questions - https://taxr.ai actually specializes in analyzing these complex multi-entity tax situations. When I uploaded our partnership documents, it identified exactly how our lower-tier EBIE should be tracked and when it would become deductible. It even flagged a mistake our previous accountant made where they were treating EBIE incorrectly on Schedule A. The analysis showed we needed to separate the EBIE by originating partnership rather than aggregating it. The most helpful part was getting a clear explanation of the M-1 adjustments needed when EBIE becomes deductible. Definitely worth checking out if you're dealing with these partnership interest limitation headaches.

I was initially skeptical about using taxr.ai that someone mentioned above, but I gave it a shot with our complex partnership structure. It completely revolutionized how we're handling our 163(j) calculations. The system identified that we were incorrectly aggregating EBIE from multiple lower-tier partnerships on Schedule A instead of tracking them separately. It also clarified exactly when our EBIE would become deductible - only when the originating partnership generates ETI, not just when our upper-tier partnership has excess capacity. The most valuable insight was the Form 8990 walkthrough showing exactly where previously suspended EBIE should be reported when it becomes deductible. Saved me countless hours and probably prevented an eventual IRS notice. Seriously impressed with how it handled these obscure partnership tax rules.

Ugh, I've been trying to reach the IRS for clarification on some of these 163(j) partnership questions for WEEKS. Always on hold for hours only to get disconnected. Finally tried https://claimyr.com after seeing it recommended on another tax forum. You can watch how it works at https://youtu.be/_kiP6q8DX5c. It actually worked! Their system held my place in the IRS queue and called me back when an agent was available. I got through to a business tax specialist who confirmed several key points about EBIE tracking: 1) EBIE must be tracked at the partner level by originating partnership 2) When the originating partnership generates ETI, it issues a statement showing how much EBIE is now deductible 3) The M-1 adjustment is considered permanent because it's a partnership-to-partnership timing issue Saved me so much time compared to the endless hold music. Just sharing in case anyone else needs clarification from the IRS on these partnership interest limitation questions.

I need to eat my words from my skeptical comment above. After continuing to struggle with getting IRS guidance on our partnership's 163(j) issues, I tried Claimyr yesterday out of desperation. Got connected to an IRS specialist within 45 minutes (after previously spending 3+ hours on hold multiple times). The agent walked me through exactly how to track EBIE from our lower-tier partnerships on Form 8990 Schedule A, and confirmed that we need to maintain separate tracking by originating partnership. They even emailed me specific examples from the regulations that clarified when EBIE becomes deductible and how to report it on the M-1. This saved our firm days of research and probably thousands in billable hours. Sometimes you have to admit when you're wrong - this service actually delivered exactly what it promised.

I'm a bit late to this conversation, but wanted to add a critical point about EBIE that hasn't been mentioned. The final 163(j) regulations clarified that EBIE from a lower-tier partnership does NOT free up just because the upper-tier partnership has excess capacity. For example: - Partnership A is a partner in Partnership B - Partnership B allocates $100k EBIE to Partnership A - In Year 2, Partnership A has excess capacity, but Partnership B doesn't generate any ETI - Partnership A CANNOT use the $100k EBIE despite having its own excess capacity This entity-by-entity approach is what makes Schedule A tracking so important. The EBIE from each lower-tier partnership must be separately tracked until that specific partnership generates ETI.

Just a practical tip from someone who's been dealing with 163(j) since TCJA started - create a separate Excel tracking worksheet for each partnership that receives EBIE from lower-tier partnerships. Track: 1) Year EBIE was allocated 2) Amount of EBIE 3) Partnership that originated the EBIE 4) Amount freed up each year 5) Remaining balance Makes year-to-year reporting much cleaner, especially when partnerships have different tax years or when there are partial dispositions. Most tax software still struggles with the multi-tier aspects of 163(j).

This is such a helpful discussion! I've been struggling with 163(j) for our multi-tier partnership structure and this clarifies so much. One additional nuance I learned the hard way - when you have EBIE from multiple lower-tier partnerships, make sure to track the character of the underlying interest expense too. Some of our partnerships had both business interest and investment interest, and the EBIE maintains its character when it flows up. This becomes important for individual partners who have separate investment interest limitations. Also, for anyone dealing with foreign partnerships in the mix, the 163(j) rules get even more complex. The IRS hasn't provided much guidance on how EBIE interacts with the various international tax provisions, so we've had to be very conservative in our interpretations. @Giovanni Martello - your original questions were spot-on. The key insight is that 163(j) operates on an entity-by-entity basis, so each partnership's limitation is calculated separately. The EBIE suspension and release mechanism is specifically designed to prevent taxpayers from moving interest deductions between entities to circumvent the limitations.

This thread has been incredibly helpful! As someone new to handling 163(j) in multi-tier partnerships, I really appreciate all the detailed explanations. One question I haven't seen addressed - when a partnership receives EBIE on line 13k of a K-1, does this impact the partnership's own 163(j) calculation for the current year? Or is it purely a tracking item that sits on Schedule A until the originating partnership generates ETI? I'm working with a client who has EBIE from three different lower-tier partnerships, and I want to make sure I'm not double-counting anything in the current year Form 8990 calculation. The EBIE received shouldn't reduce the partnership's current year business interest expense for 163(j) purposes, correct? Also, @Adriana Cohn, I'd be very interested in that Excel tracking template if you're willing to share. Managing the multi-entity tracking has been my biggest challenge so far.

This has been an incredibly informative discussion! I'm working through similar 163(j) issues with a client who has a three-tier partnership structure, and this thread has answered so many questions I've been wrestling with. One scenario I'm still trying to understand - what happens when the upper-tier partnership itself generates EBIE in the same year it receives EBIE from a lower-tier partnership? Do these get netted against each other, or are they tracked completely separately? For example: - Partnership X receives $50k EBIE from Partnership Y (tracked on Schedule A) - Partnership X also generates its own $30k EBIE from its direct operations - Partnership X passes both amounts up to its partners I assume the $30k gets allocated to partners on line 13k, while the $50k from Partnership Y also flows up on line 13k but needs separate tracking by the receiving partners. Is that correct? Also, @Yara Abboud and @Adriana Cohn, thank you for clarifying the separation between current year calculations and EBIE tracking. That distinction has been my biggest source of confusion, and your explanations really cleared it up for me.

This discussion has been incredibly thorough and helpful! I'm dealing with a similar multi-tier partnership situation where we have EBIE flowing through multiple levels. One additional consideration I'd like to mention - when partnerships have different fiscal years, the timing of EBIE recognition and release can get even more complex. We have a situation where our lower-tier partnership (calendar year) generated ETI in December 2023, which freed up some of our EBIE, but our upper-tier partnership (June 30 year-end) didn't receive the updated K-1 information until after we'd already filed our return. This created a timing mismatch where we had to amend our return to properly reflect the EBIE that became deductible. Now we're being extra careful about coordinating the filing timing between our tiered partnerships to avoid these issues. For anyone dealing with similar structures, I'd recommend establishing clear communication protocols between the partnerships about ETI generation and EBIE status before filing deadlines. The entity-by-entity tracking that everyone has discussed here becomes even more critical when you add different tax years into the mix. Also wanted to echo the appreciation for all the detailed explanations about Schedule A tracking and the separation from current year calculations - this thread should be bookmarked by anyone dealing with 163(j) in partnership structures!

This has been such a comprehensive discussion on 163(j) in multi-tier partnerships! As a tax professional who's been grappling with these rules since TCJA, I want to add one more practical consideration that hasn't been mentioned yet. When dealing with EBIE in tiered partnerships, it's crucial to establish proper documentation and communication procedures between all entities in the structure. We've found it helpful to create an annual "EBIE Status Report" that gets circulated to all partnerships in the tier showing: 1) Current year ETI generated (if any) by each partnership 2) EBIE being freed up as a result 3) Remaining EBIE balances by originating partnership 4) Projected ETI for the following year based on business plans This proactive approach helps prevent the timing mismatches that @Hugo Kass mentioned and ensures all partnerships can properly complete their Forms 8990 and Schedule A. One more technical point - don't forget that the 163(j) limitation can interact with other partnership tax rules like the excess business loss limitation under Section 461(l). We've seen cases where EBIE becomes deductible but then gets caught by the 461(l) limitation at the partner level, creating yet another layer of suspended deductions to track. The complexity of these rules really highlights why proper planning and documentation is essential in multi-tier partnership structures.

As someone who's been working with 163(j) rules since their inception, I want to emphasize how critical it is to maintain meticulous records for multi-tier partnership EBIE tracking. The complexity really can't be overstated. One issue I haven't seen mentioned yet is what happens when partnerships undergo structural changes - like conversions to different entity types or mergers. We had a situation where a lower-tier partnership that had generated EBIE converted to an LLC taxed as a disregarded entity. This created uncertainty about whether the EBIE could ever be released since the "originating partnership" technically ceased to exist. After extensive research and consultation with the IRS, we determined that the EBIE effectively became permanently suspended because there was no longer an entity that could generate the required ETI. It's a harsh result that highlights why partnership planning needs to consider these 163(j) implications. For practitioners dealing with these scenarios, I'd strongly recommend getting advance rulings or at least documenting your position thoroughly before proceeding with any structural changes that might affect partnerships with suspended EBIE. The documentation approaches that @Aria Khan and @GalacticGuru discussed are absolutely essential. These rules are only going to get more complex as the IRS issues additional guidance, so having robust tracking systems in place is critical for compliance.