MFA encourages Treasury and the IRS to adopt final rules implementing the Tax Cuts and Jobs Act of 2017 that confirm that investment interest expenses paid by all partnerships, including trading partnerships, should be applied at the partnership level to all non-corporate partners, including materially participating partners.

MFA also encourages policymakers to permit tiered partnerships to aggregate both interest expense and interest income, similar to the aggregation rules for consolidated corporate groups.

The Tax Cuts and Jobs Act amended section 163(j) of the Code to generally limit the amount of business interest expense that a taxpayer can deduct to the sum of the taxpayer’s business interest income, 30 percent of the taxpayer’s adjusted taxable income, and the taxpayer’s floor plan financing interest expense. The TCJA excludes investment interest expense from this general limitation, which was a key MFA advocacy objective.

Treasury issued proposed rules in late 2018, which contained preamble language that would subject actively traded hedge fund partnerships to the 30 percent interest expense limitation at the fund level and also would subject partners in the fund to a second limitation under the investment interest expense rules in section 163(d).