- Rev. Proc. 2026-17 provides guidance to withdraw certain section 163(j) excepted trade or business elections.
- Taxpayers that withdrew an election may make a late election to opt out of bonus depreciation for affected property.
- The guidance allows flexibility for controlled foreign corporation (CFC) group elections and offers eligible partnerships to file amended returns for the applicable years.
What does Rev. Proc. 2026-17 do?
The IRS issued Revenue Procedure 2026-17 to provide transition guidance under §163(j) and related depreciation rules. This relief follows changes made by the One Big Beautiful Bill Act (OB3 or OBBBA), which permanently restores a more favorable §163(j) limitation by calculating adjusted taxable income using essentially a tax-basis earnings before interest, taxes, depreciation, and amortization (EBITDA) approach, rather than tax-basis earnings before interest and taxes (EBIT), for tax years beginning after December 31, 2024.
The revenue procedure addresses withdrawal of an electing real property trade or business, an electing farming business, or an excepted regulated utility trade or business for purposes of the business interest expense limitation. The revenue procedure allows certain taxpayers to withdraw the applicable election for the taxable year in which the election was made and provides related procedural relief. Under Rev. Proc. 2026-17, the withdrawal relief generally applies to certain §163(j)(7) entity elections made for taxable years beginning in 2022, 2023, or 2024. A §163(j)(7) election generally allows taxpayers to be treated as an excepted trade or business, and therefore not subject to the §163(j) limitation, in exchange for using alternative depreciation rules, including straight-line depreciation for certain property.
The guidance also permits taxpayers that withdraw from one of these elections to make a late election not to claim additional first-year depreciation (bonus depreciation) for certain property, which may be relevant when revisiting depreciation treatment after an election change. Additionally, the revenue procedure provides guidance allowing a taxpayer to revoke or make a CFC group election without regard to the usual 60-month limitation for the first specified period of a group beginning after December 31, 2024.
What action items and important considerations should I make?
- Review §163(j)(7) elections: Identify whether a §163(j)(7) election was made as an electing real property trade or business, an electing farming business, or an excepted regulated utility trade or business.
- Model tradeoffs: Evaluate the interest limitation impact of withdrawing an election and the resulting depreciation implications.
- International structures: Assess whether to make or revoke a CFC group election for the first specified period beginning after December 31, 2024.
- Confirm filing deadlines: File any amended return by the earlier of October 15, 2026, or the applicable statute of limitations deadline for the tax return being amended. For partnerships subject to the centralized partnership audit rules (BBA), the revenue procedure allows partnerships the option to file an amended Form 1065 in lieu of an administrative adjustment request (AAR) to account for changes provided by the revenue procedure.1
How Forvis Mazars Can Help
Forvis Mazars can assist with identifying affected §163(j)(7) elections, modeling the impact of withdrawal, and coordinating any related depreciation elections or adjustments. Contact us to learn more.
- 1BBA refers to the centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015; partnerships generally make corrections under that regime through an administrative adjustment request (AAR).