The Internal Revenue Service (IRS) recently released guidance clarifying that a tax limitation included in last year’s tax reform law was not intended to apply to infrastructure related public private partnerships (P3s).  In May, AGC joined industry allies in providing comments to the IRS expressing our concern that Section 163(j) of the Internal Revenue Code may have the unintended consequence of creating a substantial disincentive for private investment in public infrastructure through the use of P3s because of substantially increased costs.
This increase would have been caused as a result of the tax reform law’s restriction on the ability of a company to utilize interest deductions to the extent that its interest expense exceeds 30% of adjusted taxable income.  The law, however, did provide an exception for “real property trades or businesses” to elect out of the restriction at the cost of losing access to the expensing allowance. Our comments in May asked for P3s to be considered as real property trades or business.
As such, AGC is pleased to see the new IRS guidance providing a safe harbor that allows certain trades or businesses that are conducted in connection with the “designing, building, managing, operating, or maintaining of certain core infrastructure projects” as real property trades or businesses.
For more information, please contact Sean O’Neill at [email protected], or (202) 547-8992.