U.S. Tax Reform: IRS Proposes Interest Deduction Limitation Regulations

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On November 26, 2018, the Internal Revenue Service (the “IRS”) and the U.S. Department of the Treasury (the “Treasury”) issued proposed regulations (the “Proposed Regulations”) under section 163(j) of the Internal Revenue Code (the “Code”).[1]  Section 163(j) limits the deductibility of net business interest expense to 30% of “adjusted taxable income” plus “floor plan financing interest expense” for taxable years beginning after December 31, 2017.

The Proposed Regulations generally apply to taxable years ending after the date the Proposed Regulations are published as final regulations. However, taxpayers may elect to apply the Proposed Regulations retroactively to a taxable year beginning after December 31, 2017 so long as the taxpayer and any related parties consistently apply the Proposed Regulations to those taxable years.

This post provides background and a general summary of some of the most important aspects of the Proposed Regulations. For more information, please contact any of the Proskauer tax lawyers listed on this post or your regular Proskauer contact.  Click to read more about the Proposed Regulations.

Background

Section 163(j) and the Proposed Regulations generally disallow a deduction for business interest expense that exceeds the sum of (i) business interest income, (ii) 30% of adjusted taxable income (“ATI”), and (iii) floor plan financing interest expense in the current taxable year (this combined limitation, the “section 163(j) limitation”).[2] To the extent that business interest expense for a taxable year exceeds this limitation, the taxpayer generally may carryforward the amount of disallowed business interest expense to subsequent taxable years.[3] The section 163(j) limitation applies to a taxpayer’s total amount of business interest expense in a taxable year (including carryforwards of disallowed business interest expense from prior taxable years), and is not traced to particular debt obligations.[4]

ATI is the taxable income of the taxpayer, computed without regard to (i) any item of income, gain, deduction, or loss that is not properly allocable to a trade or business, (ii) business interest expense and income, (iii) net operating loss deductions under section 172, (iv) deductions for qualified business income under section 199A, and (v) for years beginning before January 1, 2022, deductions for depreciation, amortization, or depletion.[5]

A small business taxpayer, other than a tax shelter, is not subject to the section 163(j) limitation if the taxpayer’s average annual gross receipts are $25 million or less for the three taxable years immediately preceding the current year.[6] Certain electing real property businesses, electing farming businesses, and excepted regulated utility businesses are entirely exempt from the section 163(j) limitation (“excepted trades or businesses”) for each taxable year in which they qualify.

Summary of the Proposed Regulations

Expansive scope of “interest” including an anti-abuse rule

The Proposed Regulations define “interest” very broadly for purposes of section 163(j) to include amounts paid, received, or accrued as compensation for the use or forbearance of money under the terms of an instrument or contractual arrangement that is treated as indebtedness under the Code, or an amount that is treated as interest under the Code.[7] These items include original issue discount, qualified stated interest, acquisition discount, amounts treated as interest in certain integrated transactions, and accrued market discount.[8]

The Proposed Regulations also treat as interest certain amounts that are closely related to interest and that affect the economic yield or cost of funds of a transaction involving interest, but may not be compensation for the use or forbearance of money on a stand-alone basis[9] or otherwise treated as interest under general principles, such as (i) income, deduction, gain, or loss from transactions used to hedge interest-bearing assets or liabilities, (ii) substitute interest payment, (iii) commitment fees, (iv) debt issuance costs, (v) guaranteed payments for the use of capital,[10] and (vi) the time value component of a non-cleared swap with significant nonperiodic payments.[11] These items are treated as both interest income and interest expense for purposes of section 163(j). However, the Proposed Regulations also include an anti-abuse rule that treats as interest expense for purposes of section 163(j) any expense or loss predominately incurred in consideration of the time value of money in a transaction or series of transactions in which the taxpayer secures the use of funds for a period of time (and which is not included in the preceding list).[12] Therefore, if a corporation that issues preferred stock or a partnership issues a preferred interest that is entitled to allocated income, it is possible that such issuer could be treated as paying interest for purposes of the anti-abuse rule, even though the preferred stock or partnership interest would not generate interest expense for other federal income tax purposes. Also, the anti-abuse rule does not treat income or gain in analogous transactions as interest income.  Accordingly, under the Proposed Regulations, a taxpayer that both secures and expends funds and predominantly incurs and receives time value of money consideration  not otherwise treated as interest would be whipsawed by being deemed to pay interest expense subject to the section 163(j) limitation, but not receiving interest income that could be offset by the interest expense.

Definition of ATI

The Proposed Regulations refine the statutory definition of ATI (the amount to which the 30% limitation on deductibility applies) by (i) subtracting floor plan financing interest expense, (ii) requiring, in taxable years beginning before January 1, 2022, an adjustment for sales or dispositions of property subject to depreciation, amortization, or depletion, and (iii) requiring an adjustment with respect to sales or dispositions of stock of a member of a consolidated group or partnership interest.[13]  These adjustments under the Proposed Regulations are described as intended to prevent double-counting. However, the ATI adjustments do not include depreciation, amortization, or depletion that are capitalized into inventory property under section 263A and included in costs of goods sold.[14]

Ordering rules and interaction with other Code provisions

The Proposed Regulations provide that section 163(j) is generally applied after other provisions that defer, capitalize, or disallow interest expense. Thus, the section 163(j) limitation typically applies to interest expense that otherwise could be deducted entirely without regard to the section 163(j) limitation.[15] Interest expense that has been disallowed, deferred, or capitalized in the current taxable year, or that has not yet been accrued, is not taken into account for purposes of section 163(j).[16] However, section 163(j) is applied before the at-risk rules and passive activity loss rules in sections 465 and 469 as well as the excess business loss rules in section 461(l).[17] The IRS has requested comments regarding the interaction between section 163(j) and the provisions relating to exclusions from income on the discharge of indebtedness. The Proposed Regulations reserve on the interaction between section 163(j) and the base erosion and anti-abuse tax under section 59A.[18]

Applying section 163(j) to all of a C corporation’s interest expense

The Proposed Regulations provide that all interest expense and interest income of a C corporation (including, in certain cases, members of a consolidated group, real estate investment trusts (REITs), and regulated investment companies (RICs)) is per se business interest expense and business interest income for purposes of section 163(j).[19] Moreover, the investment interest expense or investment interest income of a partnership that is allocated to a C corporation partner is recharacterized as business interest expense or business interest income (except to the extent the C corporation partner is allocated a share of a domestic partnership’s subpart F or global intangible low-taxed income (“GILTI”) inclusions that are treated as investment income at the partnership level).[20] Thus, generally all of a C corporation’s interest expense is subject to the section 163(j) limitation, and generally all of a C corporation’s interest income increases the section 163(j) limitation, except to the extent the interest expense or interest income is allocable to an excepted trade or business.

Disallowance of interest expense under section 163(j) does not affect a C corporation’s E&P calculation

The Proposed Regulations provide that a C corporation (other than a RIC or a REIT) will calculate its current earnings and profits (“E&P”) without regard to any portion of its business interest expense that is disallowed or carried forward.[21] Thus, a C corporation with disallowed interest expense for a taxable year reduces its current E&P by all of its interest expense for the year, although it may not currently deduct the disallowed portion of the interest expense. In the case of a RIC or a REIT, E&P is adjusted in the taxable year in which the business interest expense is deductible, or if earlier, in the first taxable year for which the entity is no longer a RIC or a REIT.[22]

Application of section 163(j) to partnerships and S corporations, and their partners and shareholders

The statute provides that the section 163(j) limitation applies first at the partnership level, and any allowable business interest expense deduction is taken into account in determining the nonseparately stated taxable income or loss of the partnership.[23] A partner’s ATI is increased by the partner’s distributive share of the “unused” portion of the partnership’s ATI, which is referred to as the partnership’s “excess taxable income”,[24] but not by the partner’s distributive share of income, gain, deduction, or loss.[25] The amount of a partnership’s interest expense that is disallowed as a deduction at the partnership level – its “excess business interest expense” – is not carried forward by the partnership, but instead is allocated to the partners.[26] This excess business interest expense can be used by a partner in a subsequent year only to the extent that the partner is allocated “excess taxable income” or the partnership’s business interest income that exceeds its business interest expense (this excess, “excess business interest income”) from that partnership in that subsequent year.

Under the Proposed Regulations, for purposes of calculating a partner’s own business interest income and thereby its section 163(j) limitation, the partner includes only its share of excess business interest income from the partnership,[27] and the partner may not include its share of the partnership’s floor plan financing interest for purposes of determining its own section 163(j) limitation.[28]

The Proposed Regulations create a complex eleven-step computation rule for determining a partner’s share of the partnership’s excess business interest expense, excess business interest income, and excess taxable income (referred to for this purpose as “section 163(j) excess items”).[29] The detailed computation steps are designed to ensure that the total amount of deductible business interest expense and section 163(j) excess items allocated to each partner will equal the partnership’s total amount of deductible business interest expense and section 163(j) excess items.

Similar rules apply to S corporations and their shareholders. The Proposed Regulations provide that the section 163(j) limitation applies at the S corporation level and is determined in the same manner as for partnerships.[30] The same rule prohibiting double counting of business interest income and floor plan financing interest expense applies to S corporations and their shareholders.[31] As an S corporation generally is required to make pro rata distributions of income, allocations of excess taxable income and excess business interest income are made in accordance with the shareholders’ respective pro rata interests in the S corporation.[32] Under the Proposed Regulations, if an S corporation has disallowed business interest expense, it is carried forward to the succeeding year by the S corporation, instead of being allocated to its shareholders.[33] In contrast, partners in partnerships carry forward their share of a partnership’s disallowed business interest expense.

Controlled foreign corporations (“CFCs”)

Section 163(j) applies to CFCs in the same manner as it applies to domestic corporations. Thus, a CFC with business interest expense is required to apply the Proposed Regulations to determine its section 163(j) limitation for purposes of computing subpart F income, GILTI-tested income, and income effectively connected with a U.S. trade or business (“ECI”). While the section 163(j) limitation is taken into account when calculating the above types of taxable income, the earnings and profits of a CFC are reduced by interest expense that is subject to the section 163(j) limitation.[34] Accordingly, for a CFC with only subpart F income, the section 163(j) limitation will have no practical effect and the United States shareholders of the CFC will effectively benefit from the interest expense derived by the CFC.

By default, the Proposed Regulations apply the section 163(j) limitation on a CFC-by-CFC basis.[35] However, this application may result in an unfair double counting of GILTI-tested income for a United States shareholder.  For example, if CFC 1 and CFC 2 are controlled by the same United States shareholder, and CFC 1 makes a loan to CFC 2, then the interest income received by CFC 1 would be included as GILTI-tested income while the deduction for the corresponding interest expense incurred by CFC 2 would be limited under section 163(j), thereby increasing CFC 2’s GILTI-tested income. At the United States shareholder level, the inclusion of the business interest income coupled with the limitation on the deductibility of the corresponding business interest expense would amount to double counting. To mitigate this double counting, the Proposed Regulations allow an election to calculate the section 163(j) limitation on a group basis (the “CFC group election”).

The CFC group election is made by applying the rules for computing the section 163(j) limitation of an “applicable CFC” under the Proposed Regulations.[36]  The term “applicable CFC” means a CFC, but only if the foreign corporation has at least one United States shareholder that owns, within the meaning of section 958(a), stock of the foreign corporation.[37] Once the election is made, it is irrevocable until or unless a CFC group ceases to exist or with respect to a particular CFC, when such CFC ceases to be a member.[38] A CFC group is two or more applicable CFCs at least 80% of the stock by value of which is directly, indirectly, or constructively owned[39] by a single United States shareholder or in the aggregate by related United States shareholders if each related United States shareholder owns the stock of each applicable CFC.[40] This election allows CFCs to net intercompany interest income and interest expense. Therefore, the members of a CFC group that has only intercompany debt and is the subject of the election would not be subject to the section 163(j) limitation. Where the CFC group holds debt other than intercompany debt and the election is made, the section 163(j) limitation is applied to a member’s allocable share of the CFC group’s business interest expense.[41]

Different rules apply to a financial services subgroup of a CFC.[42] In addition, specific rules apply to a CFC group member that is a partnership or otherwise fiscally transparent.

The Proposed Regulations require a CFC to compute ATI in accordance with either the CFC gross income computation rules[43] or the foreign corporation ECI computation rules, as applicable.[44] Rules to adjust ATI to avoid either double-counting or inappropriate exclusions related to GILTI, subpart F income, section 78, and related-party dividends are also contained in the Proposed Regulations.

Foreign persons with effectively connected income (ECI)

Foreign persons that have ECI are subject to section 163(j). The application of section 163(j) and the general rules under the Proposed Regulations is modified so that the section 163(j) limitation is calculated only with respect to the foreign person’s ECI. A foreign corporation that is not a CFC would first determine its effectively connected interest expense under Treas. Reg. § 1.882-5, and then apply the section 163(j) limitation in computing its branch income under section 884.[45]

Limited partners of trading partnerships with interest income subject to section 163(j)

Partnerships or S corporations that are “traders” or otherwise are engaged in a trade or business in which some partners or shareholders do not materially participate (e.g., limited partners of a trader hedge fund) will be subject to section 163(j).[46] To the extent that the business interest expense of such a partnership or S corporation is not subject to the section 163(j) limitation, it will still be limited by section 163(d) at the owner level. With respect to partnerships, to the extent that the business interest expense is subject to the section 163(j) limitation and becomes a carryover item of the limited partners, the interest expense will be treated as investment interest expense subject to section 163(d) in the hands of the limited partners. This would almost certainly be the worst possible result for trading funds, and will create an additional incentive for general partners and individual investors in trading funds with leverage to hold their interest in those funds in a CFC and make a section 962 election with respect to the CFC or for investors to prefer to invest through a foreign feeder that is treated as a passive foreign investment company (“PFIC”) and make a “qualifying electing fund” (“QEF”) election to report their share of the PFIC’s income.[47] Because the earnings and profits of a CFC and PFIC are reduced by interest expense that is disallowed under section 163(j), and because investors in a CFC or PFIC report only their share of the CFC’s or PFIC’s earnings and profits, investing through a CFC or PFIC will effectively preserve the investor’s interest expense deduction.[48]

Ordering rule for business interest expense deduction and carryforwards

For a C corporation taxpayer that is not a member of a consolidated group, the Proposed Regulations provide that current-year business interest expense is deducted in the current taxable year before any disallowed business interest expense carryforwards from a prior tax year are deducted in that year.[49] Disallowed business interest expense carryforwards are then deducted in the order of the tax years in which they arose, beginning with the earliest tax year, subject to certain limitations.[50]

Transition rules for disallowed disqualified interest under former section 163(j)

The Proposed Regulations include a transition rule for interest expense (including carryforwards) for which a deduction was disallowed under former section 163(j) in the taxpayer’s last taxable year beginning before January 1, 2018 (“disallowed disqualified interest”).[51] Disallowed disqualified interest is carried forward to the first taxable year beginning after December 31, 2017, except to the extent that the interest is properly allocable to an excepted trade or business.[52]

Electing excepted trade or business status; REMICs

As mentioned above, section 163(j) does not apply to any “excepted trades or businesses,” which include the trade or business of providing services as an employee, electing real property businesses, electing farming businesses, and certain regulated utility businesses. Certain infrastructure trades or businesses can qualify as an electing real property trade or business.[53] However, an excepted trade or business must use an alternative depreciation system under section 168(g)(8), which requires the assets of the business to be depreciated over a longer period and forfeits the benefit of immediate expensing under section 168(k) for certain types of property.[54] For any partnership that conducts a trade or business which qualifies as an excepted trade or business, the election must be made at the partnership level by attaching an election statement to its federal income tax return.[55]

The Proposed Regulations provide rules and procedures for making an election to be treated as an electing real property trade or business.[56] Once the election is made, it is irrevocable.[57] The Proposed Regulations clarify that a taxpayer, including a partnership, can make an election for a particular trade or business, rather than for an entire entity, and this election would apply to the taxable year that the election is made and all subsequent years.[58] The election generally terminates automatically if the taxpayer ceases to exist or ceases the operation of the electing trade or business.[59] However, the election does not terminate when a taxpayer transfers substantially all of the assets of an electing trade or business to a related party.[60]

A REIT that holds real property, interests in partnerships holding real property, or shares in other REITs holding real property may benefit from a safe harbor in the Proposed Regulations allowing the REIT to make an election to be an electing real property trade or business for all or part of its assets.[61] However, a mortgage REIT cannot make the election because real property financing is not a “real property trade or business.”

The Proposed Regulations provide that real estate mortgage investment conduits (REMICs) are not subject to the section 163(j) limitation as they are neither carrying on a trade or business nor are REMICs C corporations.

Broad anti-abuse rule

The Proposed Regulations include a broad anti-abuse rule that disregards or recharacterizes any transaction or arrangement if a principal purpose for entering into the transaction or arrangement is to avoid the application of section 163(j) or the regulations issued under it.[62] This includes the use of multiple entities to satisfy the gross receipts test in order to qualify for the small business exception.

# # #

[1] Pub. L. No. 115-97, 115 Stat. 2054 (2017).

[2] IRC § 163(j)(1); Prop. Reg. § 1.163(j)-2(b).

[3] IRC § 163(j)(2); Prop. Reg. § 1.163(j)-2(c).

[4] Preamble to the Proposed Regulations.

[5] IRC § 163(j)(8).

[6] IRC § 163(j)(3); Prop. Reg. § 1.163(j)-2(d) (citing the gross receipts test in section 448(c)). For purposes of section 163(j), tax shelter means any enterprise if its interests are offered for sale pursuant to a security offering that is required to be registered under securities laws; any syndicate, which is generally defined as a partnership if more than 35 percent of its losses during a taxable year are allocable to limited partners or limited entrepreneurs; or any partnership, entity, plan, or arrangement, the significant purpose of which is the avoidance or evasion of federal income tax. IRC §§ 448 (a)(3), (d)(3); 461(i)(3); 1256(e)(3)(B); 6662(d)(2)(C)(ii).

[7] Prop. Reg. § 1.163(j)-1(b)(20)(i).

[8] Prop. Reg. § 1.163(j)-1(b)(20)(i)(A)-(P).

[9] Preamble to the Proposed Regulations; see Prop. Reg. § 1.163(j)-1(b)(20)(iii).

[10] Prop. Reg. § 1.163(j)-1(b)(20)(iii).

[11] Prop. Reg. § 1.163(j)-1(b)(20)(ii)(A). The Proposed Regulations reserve on providing an exception for collateralized swaps that are cleared by a derivatives clearing organization or by a clearing agency. Prop. Reg. § 1.163(j)-1(b)(20)(ii)(B).

[12] Prop. Reg. § 1.163(j)-1(b)(20)(iv).

[13] Prop. Reg. § 1.163(j)-1(b)(1)(ii).

[14] Prop. Reg. § 1.163(j)-1(b)(1)(iii). There are also special adjustment rules for specific types of entities. Prop. Reg. § 1.163(j)-1(b)(1)(v) (cross-referencing other provisions in the Proposed Regulations where these rules can be found).

[15] Prop. Reg. § 1.163(j)-3(b)(1).

[16] Prop. Reg. § 1.163(j)-3(b).

[17] Prop. Reg. § 1.163(j)-3(b)(4).

[18] Prop. Reg. § 1.163(j)-3(b)(10).

[19] The preamble to the Proposed Regulations notes that this approach is consistent with the legislative history of section 163(j) and Notice 2018-28. 1.163(j)-4(b)(1).

[20] Prop. Reg. § 1.163(j)-4(b)(3); Prop. Reg. § 1.163(j)-7(d)(1)(ii).

[21] Prop. Reg. § 1.163(j)-4(c)(1).

[22] Prop. Reg. § 1.163(j)-4(c)(2).

[23] IRC § 163(j)(4)(A)(i); Prop. Reg. § 1.163(j)-6(a). Although “non-separately stated taxable income or loss of the partnership” is not defined in section 163(j), it is understood it to mean the partnership’s “taxable income or loss, exclusive of items requiring separate computation under other paragraphs of [Section 702(a)].” See New York State Bar Association Tax Section, Report on Section 163(j), Report No. 1393 (Mar. 28, 2018).

[24] Excess taxable income is the amount that bears the same ratio to the partnership’s ATI as (i) the excess (if any) of (A) 30% of the ATI of the partnership over (B) the amount (if any) by which the business interest expense of the partnership, reduced by the floor plan financing interest expense, exceeds the business interest income of the partnership, bears to (ii) 30% of the ATI of the partnership. IRC § 163(j)(4)(C); Prop. Reg. § 1.163(j)-1(b)(15).

[25] IRC § 163(j)(4)(A)(ii); Prop. Reg. § 1.163(j)-6(e)(1).

[26] IRC § 163(j)(4)(B)(i); Prop. Reg. § 1.163(j)-6(g)(1).

[27] Prop. Reg. § 1.163(j)-6(e)(4)(i).

[28] Prop. Reg. § 1.163(j)-6(e)(4)(ii); see also Notice 2018-28, 2018-16 I.R.B. 492, where the basis for these rules was first announced.

[29] Prop. Reg. § 1.163(j)-6(f)(2).

[30] Prop. Reg. § 1.163(j)-6(l)(1).

[31] Prop. Reg. § 1.163(j)-6(l)(4)(iii).

[32] Prop. Reg. § 1.163(j)-6(l)(1).

[33] Prop. Reg. § 1.163(j)-6(l)(5).

[34] Prop. Reg. § 1.163(j)-7(e).

[35] Prop. Reg. § 1.163(j)-7(b)(2).

[36] Prop. Reg. § 1.163(j)-7(b)(5).

[37] Prop. Reg. § 1.163(j)-7(f)(2).

[38] Prop. Reg. § 1.163(j)-7(b)(5).

[39] Ownership for this purpose is interpreted within the meaning of section 958(a) of the Code.

[40] Prop. Reg. § 1.163(j)-7(f)(6).

[41] A member’s allocable share of the business interest expense is the CFC group’s net business interest expense multiplied by a fraction equal to the CFC group member’s business interest expense over the aggregate net business interest expense of each CFC group member. See Prop. Reg. § 1.163(j)-7(f)(1)(i).

[42] Prop. Reg. § 1.163(j)-7(f)(1)(ii).

[43] Treas. Reg. § 1.952-2.

[44] See generally IRC §§ 882, 884.

[45] Prop. Reg. § 1.163(j)-8(e). If the foreign corporation is a CFC, then the ordering is reversed. Prop. Reg. § 1.163(j)-8(d).

[46] Rev. Rul. 2008-12 (2008-1 C.B. 520) provides that securities trading activity conducted by a partnership involves a trade or business and therefore is not a passive activity. Because limited partners do not materially participate in the partnership’s trading business, the limited partners’ interest in the partnership’s trading activity is an interest in an activity that is property held for investment under section 163(d)(5)(A)(ii).

[47] Section 962 provides that an individual United States shareholder (including trusts and estates) of a CFC may elect to be taxed at corporate rates (i.e., 21% rather than marginal rates up to 37%) on income included under section 951(a) and on the United States shareholder’s GILTI inclusions. Making this annual election also permits the individual United States shareholder to claim an indirect tax credit under section 960 for foreign income taxes paid by the CFC on the section 951(a) amounts included in the taxpayer’s income.

Section 1297(a) generally defines a PFIC as a foreign corporation if 75% or more of its gross income for a taxable year is passive income or if 50% or more of the average value of its gross assets for a taxable year consists of assets that would produce passive income. Section 1295 permits a U.S. investor to elect to tax its investment in a PFIC as a qualifying electing fund (QEF), which generally is a modified pass-through regime in which the character of income and gain is preserved and recognized currently, but losses, deductions and credits do not flow through.

[48] CFC or PFIC status generally will be disadvantageous if the fund earns either substantial dividend income or income that is effectively connected with a trade or business in the United States.

[49] Prop. Reg. § 1.163(j)-5(b)(2).

[50] Prop. Reg. § 1.163(j)-5(b)(2).

[51] Prop. Reg. § 1.163(j)-1(b)(10).

[52] Prop. Reg. § 1.163(j)-11(b). No transition relief is granted for taxpayers who are subject to the new section 163(j), but who do not elect to apply the Proposed Regulations to taxable years before they are finalized.

[53] Rev. Proc. 2018-59 (2018-50 I.R.B.) issued effectively concurrently with the Proposed Regulations, allows taxpayers to treat certain trades or businesses that are conducted in connection with the designing, building, managing, operation, or maintaining of certain core infrastructure projects as real property trades or businesses eligible to qualify as an electing real property trade or business.

[54] IRC § 163(j)(10).

[55] Prop. Reg. §§ 1.163(j)-9(c)(1), (4).

[56] Prop. Reg. § 1.163(j)-9.

[57] Prop. Reg. § 1.163(j)-9(b)(2).

[58] Prop. Reg. § 1.163(j)-9(b).

[59] Prop. Reg. § 1.163(j)-9(d).

[60] Prop. Reg. § 1.163(j)-9(d).

[61] Prop. Reg. § 1.163(j)-9(g).

[62] Prop. Reg. § 1.163(j)-2(h).

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

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