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Instructions for Form 8926

Department of the Treasury

Internal Revenue Service

(Rev. December 2017)

Disqualified Corporate Interest Expense Disallowed Under Section 163(j)

and Related Information

Interest paid or accrued on

The rate of tax imposed without

Section references are to the Internal Revenue

Code unless otherwise noted.

indebtedness held by an unrelated

regard to the treaty.

person if there is a disqualified

Future Developments

Pass-Through Entities

guarantee of the indebtedness and the

interest is not subject to a U.S. gross

In the case of any interest paid or

For the latest information about

basis income tax (a tax figured on the

accrued to a partnership, the

developments related to Form 8926 and

gross amount of an item of income

determination of whether any tax is

its instructions, such as legislation

without reduction for any allowed

subject to U.S. income tax is made at

enacted after they were published, go to

deduction), and

the partner level. A similar rule applies

IRS.gov/Form8926.

Interest paid or accrued (directly or

in the case of other pass-through

indirectly) to a taxable real estate

entities and in the case of tiered

General Instructions

investment trust (as defined in section

partnerships and other entities.

856(l)) by a subsidiary of the trust.

Purpose of Form

Treaties

Also, any disqualified interest

Corporations use Form 8926 to figure

disallowed as a deduction by section

If a treaty between the United States

the amount of any corporate interest

163(j) in a tax year is carried forward

and a foreign country reduces the rate

expense deduction disallowed by

and treated as disqualified interest paid

of income tax imposed on the interest

section 163(j). A corporation's interest

or accrued in the next tax year.

paid or accrued to a person, the interest

expense deduction may be disallowed if

is treated as paid or accrued in part to a

Related Person

it paid or accrued disqualified interest

person subject to and in part to a person

during the tax year. However, if at least

not subject to U.S. income tax on the

A related person is a person who is

one of the following statements is true,

interest.

related to the corporation under

disqualified interest which the

sections 267(b) or 707(b)(1). For this

In this situation, figure the interest

corporation has actually paid or accrued

purpose, the attribution rules of section

treated as paid or accrued to a person

in the current tax year will not be

267(c) apply. In determining whether

not subject to U.S. income tax on the

disallowed by section 163(j).

persons are related, the substance of

interest by multiplying the interest by:

The corporation's debt to equity ratio

ownership, rather than its form, controls.

The rate of tax imposed without

at the end of the tax year does not

regard to the treaty, reduced by the rate

You determine relatedness as of the

exceed 1.5 to 1.

of tax imposed by the treaty, divided by

date on which an item of interest

The corporation does not have any

The rate of tax imposed without

expense accrues. Consequently,

excess interest expense for the tax

regard to the treaty.

changes in the relationship between the

year.

payor corporation and the payee after

Disqualified Guarantee

the accrual date are irrelevant.

Corporations also use Form 8926 to

figure the amount of any interest

A guarantee includes any arrangement

Partnerships. A partnership is not a

expense deduction disallowed by

under which a person (directly or

related person if less than 10% of the

section 163(j) for a previous tax year

indirectly through an entity or otherwise)

profits and capital interest in the

that is allowed for the current tax year.

assures, on a conditional or

partnership are held by partners not

unconditional basis, the payment of

subject to U.S. income tax on the

Who Must File

another person's obligation under any

interest. However, the partners may be

indebtedness.

A corporation (other than an S

related persons.

corporation) must complete and file

A disqualified guarantee is generally

If a treaty between the United States

Form 8926 if it paid or accrued

a guarantee by a related person that is a

and a foreign country reduces the rate

disqualified interest during the current

tax-exempt organization or a foreign

of income tax imposed on a partner's

tax year or had a carryforward of

person, unless the corporation owns a

share of any interest paid or accrued to

disqualified interest from a previous tax

controlling interest in the tax-exempt

a partnership, that partner's interests in

year. A corporation must complete and

organization or foreign person.

the partnership are treated as held in

file Form 8926 even if it meets the

part by a person subject to and in part

For this purpose, a controlling

debt-to-equity safe harbor of section

by a person not subject to U.S. income

interest is direct or indirect ownership of

163(j)(2)(A)(ii).

tax on the interest.

at least 80% of the total voting power

Disqualified Interest

In this situation, figure the interest

and value of all classes of stock of a

treated as held by a partner not subject

corporation, or 80% of the profit and

Disqualified interest is:

to U.S. income tax by multiplying the

capital interests in any other entity. For

Interest paid or accrued (directly or

interest by:

this purpose, the rules of paragraphs (1)

indirectly) to a related person not

The rate of tax imposed without

and (5) of section 267(c) apply to both

subject to U.S. income tax on the

regard to the treaty, reduced by the rate

corporations and entities other than

interest,

of tax imposed by the treaty, divided by

corporations.

Nov 09, 2017

Cat. No. 51518B

Instructions For Form 8926 - Disqualified Corporate Interest Expense Disallowed Under Section 163(J) And Related Information

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