COVID-19 Resources

IRS Issues Final Regulations Affecting Manufacturing Companies

Written on August 3, 2020

On Tuesday, July 28th, the IRS issued final regulations, new proposed regulations, and two notices related to Section 163(j), which addresses deductible business income expenses. The final regulations changed the treatment of the depreciation of cost of goods sold for purposes of calculating adjusted taxable income (ATI).

Manufacturers should be aware of these changes because your returns might be affected.

The National Association of Manufacturers (NAM) has been opposing various lines in an IRS proposal that would increase the cost of its financing with debt. On Tuesday, NAM won this battle, which is a major benefit for manufacturers.

Initially, the 2017 TCJA law limited interest payment deductions to what was equal to 30% of adjusted income. The CARES Act raised that to 50% of adjusted income for 2019 and 2020 tax years. In the final regulations issued this week, the IRS acknowledged that under the original version, the manufacturing industry would be at a disadvantage because of the way these businesses would have to calculate the limitation under the proposed regulations. Under the final regulations, the limitation calculation was changed to allow manufacturers to be treated the same as other taxpayers which is much more favorable.

To learn more about how this program impacts your specific organization, reach out to your Warren Averett advisor directly, or ask a member of our team to reach out to you.

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