Allocation and Apportionment of Interest Expense, 41424-41426 [2014-16461]
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41424
Federal Register / Vol. 79, No. 136 / Wednesday, July 16, 2014 / Rules and Regulations
this section. Existing loan assistance,
ongoing participation, or insured loans
under the programs shall continue to be
governed by regulations in effect as
described in this section.
(b) Any existing loan assistance,
ongoing participation, or insured loans
under the programs listed in this
paragraph will continue to be governed
by the regulations in effect as they
existed immediately before October 11,
1995 (24 CFR parts 205, 209, 224–228,
240, 277, 278, 1994 edition):
(1) Part 205, Mortgage Insurance for
Land Development (Title X of the
National Housing Act, repealed by
section 133(a) of the Department of
Housing and Urban Development
Reform Act of 1989 (Public Law 101–
235, approved December 15, 1989).
(2) Part 209, Individual Homes; War
Housing Mortgage Insurance (12 U.S.C.
1736–1743).
(3) Part 224, Armed Services HousingMilitary Personnel (12 U.S.C. 1736–
1746a).
(4) Part 225, Military Housing
Insurance (12 U.S.C. 1748b).
(5) Part 226, Armed Services HousingCivilian Employees (12 U.S.C. 1748h–1).
(6) Part 227, Armed Services HousingImpacted Areas (12 U.S.C. 1478h–2).
(7) Part 228, Individual Residences;
National Defense Housing Mortgage
Insurance (12 U.S.C. 1750 as amended
by 42 U.S.C. 1591c).
(8) Part 240, Mortgage Insurance on
Loans for Fee Title Purchase (12 U.S.C.
1715z–5).
(9) Part 277, Loans for Housing for the
Elderly or Handicapped (12 U.S.C.
1701q).
(10) Part 278, Mandatory Meals
Program in Multifamily Rental or
Cooperative Projects for the Elderly or
Handicapped (12 U.S.C. 1701q).
(c) Any existing loan assistance,
ongoing participation, or insured loans
under the programs listed in this
paragraph will continue to be governed
by the regulations in effect as they
existed immediately before May 11,
1996 (24 CFR parts 215, 222, and 237,
1995 edition):
(1) Part 215, Rent Supplement
Payments Program (12 U.S.C. 1715f).
(2) Part 222, Service Person’s
Mortgage Insurance Program (12 U.S.C.
1715m).
(3) Part 237, Special Mortgage
Insurance for Low and Moderate Income
Families (12 U.S.C. 1715z–2).
(d) Any existing loan assistance,
ongoing participation, or insured loans
under the program listed in this
paragraph will continue to be governed
by the regulations in effect as they
existed immediately before December
26, 1996 (24 CFR part 233, 1995
edition):
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15:23 Jul 15, 2014
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(1) Part 233, Experimental Housing
Mortgage Insurance Program (12 U.S.C.
1715x).
(2) [Reserved]
(e) Any existing loan assistance,
ongoing participation, or insured loans
under the program listed in this
paragraph will continue to be governed
by the regulations in effect as they
existed immediately before August 15,
2014 (24 CFR part 257):
(1) Part 257, HOPE for Homeowners
Program (12 U.S.C. 1701z–22).
(2) [Reserved]
§ 200.1302
■
[Removed]
3. Remove § 200.1302.
PART 257 [Removed]
■
4. Remove part 257.
PART 4000 [Removed]
■
5. Remove part 4000.
PART 4001 [Removed]
■
6. Remove part 4001.
Dated: July 8, 2014.
Shaun Donovan,
Secretary.
[FR Doc. 2014–16613 Filed 7–15–14; 8:45 am]
BILLING CODE 4210–67–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9676]
RIN 1545–BJ59
Allocation and Apportionment of
Interest Expense
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
AGENCY:
This document contains final
regulations that provide guidance
concerning the allocation and
apportionment of interest expense by
corporations owning a 10 percent or
greater interest in a partnership, as well
as the allocation and apportionment of
interest expense using the fair market
value method. These regulations also
update the interest allocation
regulations to conform to the statutory
changes made by section 216 of the
legislation commonly referred to as the
Education Jobs and Medicaid Assistance
Act (EJMAA), enacted on August 10,
2010, affecting the affiliation of certain
foreign corporations for purposes of
SUMMARY:
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section 864(e). These regulations affect
taxpayers that allocate and apportion
interest expense.
DATES: Effective Date: These regulations
are effective on July 16, 2014.
Applicability Dates: For dates of
applicability, see §§ 1.861–9(k) and
1.861–11(d)(6)(ii).
FOR FURTHER INFORMATION CONTACT:
Jeffrey L. Parry, (202) 317–6936 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
On September 14, 1988, a notice of
proposed rulemaking by cross-reference
to temporary regulations and temporary
regulations (TD 8228) under section 861
of the Internal Revenue Code (Code) (the
1988 temporary regulations) were
published in the Federal Register at [53
FR 35525] and [53 FR 35467],
respectively. On January 17, 2012, a
notice of proposed rulemaking by crossreference to temporary regulations
(REG–113903–10) and temporary
regulations (the 2012 temporary
regulations) (TD 9571) which revised, in
part, the 1988 temporary regulations,
were published in the Federal Register
at [77 FR 2240] and [77 FR 2225],
respectively. Corrections to the 2012
temporary regulations were published
on February 21, 2012, in the Federal
Register at [77 FR 9844]. No written
comments were received on the 2012
temporary regulations or on the portion
of the 1988 temporary regulations
included in this regulation. A public
hearing was not requested and none was
held. This Treasury decision adopts the
proposed regulations published in
connection with the 2012 temporary
regulations, as well as the portions of
§ 1.861–9T(e)(2) and (3) of the 1988
temporary regulations that were not
amended by the 2012 temporary
regulations, with no substantive change.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a
significant regulatory action as defined
in Executive Order 12866, as
supplemented by Executive Order
13653. Therefore, a regulatory
assessment is not required. It has also
been determined that section 553(b) of
the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations, and because the regulations
do not impose a collection of
information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f), the notice of proposed
rulemaking preceding this regulation
E:\FR\FM\16JYR1.SGM
16JYR1
Federal Register / Vol. 79, No. 136 / Wednesday, July 16, 2014 / Rules and Regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small business.
Drafting Information
The principal author of these
regulations is Jeffrey L. Parry of the
Office of Chief Counsel (International).
However, other personnel from the IRS
and the Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
■
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.861–9 is amended by
1. Revising paragraphs (a), (b), (c), (d),
(e), (f)(1), (f)(2), (f)(3)(i), (f)(5), (g), (h)(1),
(h)(2), (h)(3), and (h)(4); and
■ 2. Adding five new sentences to the
end of paragraph (k).
The revisions and addition read as
follows:
■
■
ehiers on DSK2VPTVN1PROD with RULES
§ 1.861–9 Allocation and apportionment of
interest expense.
(a) through (e)(1) [Reserved]. For
further guidance, see § 1.861–9T(a)
through (e)(1).
(2) Corporate partners whose interest
in the partnership is 10 percent or more.
A corporate partner shall apportion its
interest expense, including the partner’s
distributive share of partnership interest
expense, by reference to the partner’s
assets, including the partner’s pro rata
share of partnership assets, under the
rules of paragraph (f) of this section if
the corporate partner’s direct and
indirect interest in the partnership (as
determined under the attribution rules
of section 318) is 10 percent or more. A
corporation using the tax book value
method or alternative tax book value
method of apportionment shall use the
partnership’s inside basis in its assets,
including adjustments under sections
734(b) and 743(b), if any, and adjusted
to the extent required under § 1.861–
10T(d)(2). A corporation using the fair
market value method of apportionment
shall use the fair market value of the
partnership’s assets, adjusted to the
extent required under § 1.861–10T(d)(2).
(3) Individual partners who are
general partners or who are limited
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partners with an interest in the
partnership of 10 percent or more. An
individual partner is subject to the rules
of this paragraph (e)(3) if either the
individual is a general partner or the
individual’s direct and indirect interest
(as determined under the attribution
rules of section 318) in the partnership
is 10 percent or more. The individual
shall first classify his or her distributive
share of partnership interest expense as
interest incurred in the active conduct
of a trade or business, as passive activity
interest, or as investment interest under
regulations issued under sections 163
and 469. The individual must then
apportion his or her interest expense,
including the partner’s distributive
share of partnership interest expense,
under the rules of paragraph (d) of this
section. Each such individual partner
shall take into account his or her
distributive share of the partnership
gross income or pro rata share of the
partnership assets in applying such
rules. An individual using the tax book
value or alternative tax book value
method of apportionment shall use the
partnership’s inside basis in its assets,
including adjustments under sections
734(b) and 743(b), if any, and adjusted
to the extent required under § 1.861–
10T(d)(2). An individual using the fair
market value method of apportionment
shall use the fair market value of the
partnership’s assets, adjusted to the
extent required under § 1.861–10(d)(2).
(e)(4) through (f)(3)(i) [Reserved]. For
further guidance, see § 1.861–9T(e)(4)
through (f)(3)(i).
*
*
*
*
*
(f)(5) through (h)(3) [Reserved]. For
further guidance, see § 1.861–9T(f)(5)
through (h)(3).
(h)(4) Valuing related party debt and
stock in related persons—(i) Related
party debt. For purposes of this section,
the value of a debt obligation of a
related person held by the taxpayer or
another person related to the taxpayer
equals the amount of the liability of the
obligor related person.
(ii) Stock in related persons. The
value of stock in a related person held
by the taxpayer or by another person
related to the taxpayer equals the sum
of the following amounts reduced by the
taxpayer’s pro rata share of liabilities of
such related person:
(A) The portion of the value of
intangible assets of the taxpayer and
related persons that is apportioned to
such related person under § 1.861–
9T(h)(2);
(B) The taxpayer’s pro rata share of
tangible assets held by the related
person (as determined under § 1.861–
9T(h)(1)(ii));
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41425
(C) The taxpayer’s pro rata share of
debt obligations of any related person
held by the related person (as valued
under paragraph (h)(4)(i) of this
section); and
(D) The total value of stock in all
related persons held by the related
person as determined under this
paragraph (h)(4).
(iii)
Example. (A) Facts. USP, a domestic
corporation, wholly owns CFC1 and owns
80% of CFC2, both foreign corporations. The
aggregate trading value of USP’s stock traded
on established securities markets at the end
of Year 1 is $700 and the amount of USP’s
liabilities to unrelated persons at the end of
Year 1 is $400. Neither CFC1 nor CFC2 has
liabilities to unrelated persons at the end of
Year 1. USP owns plant and equipment
valued at $500, CFC1 owns plant and
equipment valued at $400, and CFC2 owns
plant and equipment valued at $250. The
value of these assets has been determined
using generally accepted valuation
techniques, as required by § 1.861–9(h)(1)(ii).
There is an outstanding loan from CFC2 to
CFC1 in an amount of $100. There is also an
outstanding loan from USP to CFC1 in an
amount of $200.
(B) Valuation of group assets. Pursuant to
§ 1.861–9T(h)(1)(i), the aggregate value of
USP’s assets is $1100 (the $700 trading value
of USP’s stock increased by $400 of USP’s
liabilities to unrelated persons).
(C) Valuation of tangible assets. Pursuant
to § 1.861–9T(h)(1)(ii), the value of USP’s
tangible assets and pro rata share of assets
held by CFC1 and CFC2 is $1100 (the plant
and equipment held directly by USP, valued
at $500, plus USP’s 100% pro rata share of
the plant and equipment held by CFC1
valued at $400 and USP’s 80% pro rata share
of the plant and equipment held by CFC 2
valued at $200 (80% of $250)).
(D) Computation of intangible asset value.
Pursuant to § 1.861–9T(h)(1)(iii), the value of
the intangible assets of USP, CFC1, and CFC2
is $0 (total aggregate group asset value
($1100) determined in paragraph (B) less
total tangible asset value ($1100) determined
in paragraph (C)). Because the intangible
asset value is zero, the provisions of § 1.861–
9T(h)(2) and (3) relating to the apportionment
and characterization of intangible assets do
not apply.
(E) Valuing related party debt obligations.
Pursuant to § 1.861–9(h)(4)(i), the value of
the debt obligation of CFC1 held by CFC2 is
equal to the amount of the liability, $100.
The value of the debt obligation of CFC1 held
by USP is equal to the amount of the liability,
$200.
(F) Valuing the stock of CFC1 and CFC2.
Pursuant to § 1.861–9(h)(4)(ii), the value of
the stock of CFC2 held by USP is $280 (USP’s
80% pro rata share of tangible assets of CFC2
included in paragraph (C) ($200) plus USP’s
80% pro rata share of the debt obligation of
CFC1 held by CFC2 valued in paragraph (E)
($80). The value of the stock of CFC1 held
by USP is $100 (USP’s 100% pro rata share
of tangible assets of CFC1 included in
paragraph (C) ($400) less USP’s 100% pro
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16JYR1
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Federal Register / Vol. 79, No. 136 / Wednesday, July 16, 2014 / Rules and Regulations
rata share of the liabilities of CFC1 to USP
and CFC2 ($300)).
*
*
*
*
*
(k) * * * Paragraphs (e)(2), (e)(3) and
(h)(4) apply to taxable years beginning
on or after July 16, 2014. See 26 CFR
1.861–9T(e)(2) and (3) (revised as of
April 1, 2014) for rules applicable to
taxable years beginning after January 17,
2012, and before July 16, 2014. See 26
CFR 1.861–9T(e)(2) and (3) (revised as
of April 1, 2011) for rules applicable to
taxable years beginning on or before
January 17, 2012. See 26 CFR 1.861–
9T(h)(4) (revised as of April 1, 2014) for
rules applicable to taxable years ending
on or after January 17, 2012, and
beginning before July 16, 2014. See 26
CFR 1.861–9T(h)(4) (revised as of April
1, 2011) for rules applicable to taxable
years ending before January 17, 2012.
■ Par. 3. Section 1.861–9T is amended
by:
■ 1. Revising paragraphs (e)(2), (e)(3),
and (h)(4);
■ 2. Removing the four sentences before
the last sentence of paragraph (k); and
■ 3. Removing paragraph (l).
The revisions read as follows:
§ 1.861–9T Allocation and apportionment
of interest expense (temporary).
*
*
*
*
(e)(2) through (e)(3) [Reserved]. For
further guidance see § 1.861–9(e)(2)
through (e)(3).
*
*
*
*
*
(h) * * *
(4) [Reserved]. For further guidance
see § 1.861–9(h)(4).
*
*
*
*
*
■ Par. 4. In § 1.861–11, paragraphs
(d)(3), (d)(4), (d)(5), and (d)(6) are
revised to read as follows:
before July 16, 2014. See 26 CFR 1.861–
11T(d)(6)(ii) (revised as of April 1, 2010)
for rules applicable to taxable years
beginning on or before August 10, 2010.
*
*
*
*
*
■ Par. 5. Sec 1.861–11T is amended by:
■ 1. Revising paragraph (d)(6)(ii);
■ 2. Removing the last two sentences of
paragraph (h); and
■ 3. Removing paragraph (i).
The revision reads as follows:
1.861–11T. Special rules for allocating and
apportioning interest expense of an
affiliated group of corporations (temporary).
*
*
*
*
*
(d) * * *
(6) * * *
(ii) [Reserved]. For further guidance
see § 1.861–11(d)(6)(ii).
*
*
*
*
*
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
Approved: June 17, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2014–16461 Filed 7–15–14; 8:45 am]
BILLING CODE 4830–01–P
*
§ 1.861–11 Special rules for allocating and
apportioning interest expense of an
affiliated group of corporations.
ehiers on DSK2VPTVN1PROD with RULES
*
*
*
*
*
(d)(3) through (6)(i) [Reserved]. For
further guidance see § 1.861–11T(d)(3)
through (6)(i).
(ii) Any foreign corporation if more
than 50 percent of the gross income of
such foreign corporation for the taxable
year is effectively connected with the
conduct of a trade or business within
the United States and at least 80 percent
of either the vote or value of all
outstanding stock of such foreign
corporation is owned directly or
indirectly by members of the affiliated
group (determined with regard to this
sentence). This paragraph (d)(6)(ii)
applies to taxable years beginning on or
after July 16, 2014. See 26 CFR 1.861–
11T(d)(6)(ii) (revised as of April 1, 2014)
for rules applicable to taxable years
beginning after August 10, 2010, and
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15:23 Jul 15, 2014
Jkt 232001
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 117
[Docket No. USCG–2014–0575]
Drawbridge Operation Regulation; Old
River, Between Victoria Island and
Byron Tract, CA
Coast Guard, DHS.
Notice of deviation from
drawbridge regulation.
AGENCY:
ACTION:
The Coast Guard has issued a
temporary deviation from the operating
schedule that governs the Route 4
Highway Drawbridge across Old River,
mile 14.8, between Victoria Island and
Byron Tract, CA. The deviation is
necessary to allow the bridge owner to
paint mechanical components of the
bridge. This deviation allows the bridge
to remain in the closed-to-navigation
position during the deviation period.
DATES: This deviation is effective
without actual notice from July 16, 2014
until 6 a.m. on July 20, 2014. For the
purposes of enforcement, actual notice
will be used from 10 p.m. on July 13,
2014, until July 16, 2014.
ADDRESSES: The docket for this
deviation, [USCG–2014–0575], is
SUMMARY:
PO 00000
Frm 00022
Fmt 4700
Sfmt 4700
available at https://www.regulations.gov.
Type the docket number in the
‘‘SEARCH’’ box and click ‘‘SEARCH.’’
Click on Open Docket Folder on the line
associated with this deviation. You may
also visit the Docket Management
Facility in Room W12–140 on the
ground floor of the Department of
Transportation West Building, 1200
New Jersey Avenue SE., Washington,
DC 20590, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal
holidays.
If
you have questions on this temporary
deviation, call or email David H.
Sulouff, Chief, Bridge Section, Eleventh
Coast Guard District; telephone 510–
437–3516, email David.H.Sulouff@
uscg.mil. If you have questions on
viewing the docket, call Cheryl Collins,
Program Manager, Docket Operations,
telephone 202–366–9826.
FOR FURTHER INFORMATION CONTACT:
The
California Department of Transportation
has requested a temporary change to the
operation of the Route 4 Highway
Drawbridge, mile 14.8, over Old River,
between Victoria Island and Byron
Tract, CA. The drawbridge navigation
span provides 12 feet vertical clearance
above Mean High Water in the closedto-navigation position. Pursuant 33 CFR
117.183, the draw opens on signal from
May 1 through October 31 from 6 a.m.
to 10 p.m. and from November 1
through April 30 from 9 a.m. to 5 p.m.
and at other times, opening the draw on
signal if at least four hours advance
notice is given to the drawtender at the
Rio Vista drawbridge across the
Sacramento River, mile 12.8. Navigation
on the waterway is commercial and
recreational.
The drawspan will be secured in the
closed-to-navigation position from 10
p.m. to 6 a.m. from July 13, 2014 to July
20, 2014 to allow Caltrans to paint
several mechanical components of the
bridge. This temporary deviation has
been coordinated with the waterway
users. No objections to the proposed
temporary deviation were raised.
Vessels able to pass through the
bridge in the closed position may do so
at any time. The bridge will not be able
to open for emergencies between 10
p.m. and 6 a.m. during the deviation
period. An alternative route around
Victoria Island may be used for vessels
unable to pass through the bridge in the
closed position. The Coast Guard will
also inform the users of the waterways
through our Local and Broadcast
Notices to Mariners of the change in
operating schedule for the bridge so that
vessels can arrange their transits to
SUPPLEMENTARY INFORMATION:
E:\FR\FM\16JYR1.SGM
16JYR1
]]>Agencies
[Federal Register Volume 79, Number 136 (Wednesday, July 16, 2014)]
[Rules and Regulations]
[Pages 41424-41426]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16461]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9676]
RIN 1545-BJ59
Allocation and Apportionment of Interest Expense
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations that provide guidance
concerning the allocation and apportionment of interest expense by
corporations owning a 10 percent or greater interest in a partnership,
as well as the allocation and apportionment of interest expense using
the fair market value method. These regulations also update the
interest allocation regulations to conform to the statutory changes
made by section 216 of the legislation commonly referred to as the
Education Jobs and Medicaid Assistance Act (EJMAA), enacted on August
10, 2010, affecting the affiliation of certain foreign corporations for
purposes of section 864(e). These regulations affect taxpayers that
allocate and apportion interest expense.
DATES: Effective Date: These regulations are effective on July 16,
2014.
Applicability Dates: For dates of applicability, see Sec. Sec.
1.861-9(k) and 1.861-11(d)(6)(ii).
FOR FURTHER INFORMATION CONTACT: Jeffrey L. Parry, (202) 317-6936 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
On September 14, 1988, a notice of proposed rulemaking by cross-
reference to temporary regulations and temporary regulations (TD 8228)
under section 861 of the Internal Revenue Code (Code) (the 1988
temporary regulations) were published in the Federal Register at [53 FR
35525] and [53 FR 35467], respectively. On January 17, 2012, a notice
of proposed rulemaking by cross-reference to temporary regulations
(REG-113903-10) and temporary regulations (the 2012 temporary
regulations) (TD 9571) which revised, in part, the 1988 temporary
regulations, were published in the Federal Register at [77 FR 2240] and
[77 FR 2225], respectively. Corrections to the 2012 temporary
regulations were published on February 21, 2012, in the Federal
Register at [77 FR 9844]. No written comments were received on the 2012
temporary regulations or on the portion of the 1988 temporary
regulations included in this regulation. A public hearing was not
requested and none was held. This Treasury decision adopts the proposed
regulations published in connection with the 2012 temporary
regulations, as well as the portions of Sec. 1.861-9T(e)(2) and (3) of
the 1988 temporary regulations that were not amended by the 2012
temporary regulations, with no substantive change.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866, as supplemented by Executive Order 13653. Therefore, a
regulatory assessment is not required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
does not apply to these regulations, and because the regulations do not
impose a collection of information on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to
section 7805(f), the notice of proposed rulemaking preceding this
regulation
[[Page 41425]]
was submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Drafting Information
The principal author of these regulations is Jeffrey L. Parry of
the Office of Chief Counsel (International). However, other personnel
from the IRS and the Treasury Department participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.861-9 is amended by
0
1. Revising paragraphs (a), (b), (c), (d), (e), (f)(1), (f)(2),
(f)(3)(i), (f)(5), (g), (h)(1), (h)(2), (h)(3), and (h)(4); and
0
2. Adding five new sentences to the end of paragraph (k).
The revisions and addition read as follows:
Sec. 1.861-9 Allocation and apportionment of interest expense.
(a) through (e)(1) [Reserved]. For further guidance, see Sec.
1.861-9T(a) through (e)(1).
(2) Corporate partners whose interest in the partnership is 10
percent or more. A corporate partner shall apportion its interest
expense, including the partner's distributive share of partnership
interest expense, by reference to the partner's assets, including the
partner's pro rata share of partnership assets, under the rules of
paragraph (f) of this section if the corporate partner's direct and
indirect interest in the partnership (as determined under the
attribution rules of section 318) is 10 percent or more. A corporation
using the tax book value method or alternative tax book value method of
apportionment shall use the partnership's inside basis in its assets,
including adjustments under sections 734(b) and 743(b), if any, and
adjusted to the extent required under Sec. 1.861-10T(d)(2). A
corporation using the fair market value method of apportionment shall
use the fair market value of the partnership's assets, adjusted to the
extent required under Sec. 1.861-10T(d)(2).
(3) Individual partners who are general partners or who are limited
partners with an interest in the partnership of 10 percent or more. An
individual partner is subject to the rules of this paragraph (e)(3) if
either the individual is a general partner or the individual's direct
and indirect interest (as determined under the attribution rules of
section 318) in the partnership is 10 percent or more. The individual
shall first classify his or her distributive share of partnership
interest expense as interest incurred in the active conduct of a trade
or business, as passive activity interest, or as investment interest
under regulations issued under sections 163 and 469. The individual
must then apportion his or her interest expense, including the
partner's distributive share of partnership interest expense, under the
rules of paragraph (d) of this section. Each such individual partner
shall take into account his or her distributive share of the
partnership gross income or pro rata share of the partnership assets in
applying such rules. An individual using the tax book value or
alternative tax book value method of apportionment shall use the
partnership's inside basis in its assets, including adjustments under
sections 734(b) and 743(b), if any, and adjusted to the extent required
under Sec. 1.861-10T(d)(2). An individual using the fair market value
method of apportionment shall use the fair market value of the
partnership's assets, adjusted to the extent required under Sec.
1.861-10(d)(2).
(e)(4) through (f)(3)(i) [Reserved]. For further guidance, see
Sec. 1.861-9T(e)(4) through (f)(3)(i).
* * * * *
(f)(5) through (h)(3) [Reserved]. For further guidance, see Sec.
1.861-9T(f)(5) through (h)(3).
(h)(4) Valuing related party debt and stock in related persons--(i)
Related party debt. For purposes of this section, the value of a debt
obligation of a related person held by the taxpayer or another person
related to the taxpayer equals the amount of the liability of the
obligor related person.
(ii) Stock in related persons. The value of stock in a related
person held by the taxpayer or by another person related to the
taxpayer equals the sum of the following amounts reduced by the
taxpayer's pro rata share of liabilities of such related person:
(A) The portion of the value of intangible assets of the taxpayer
and related persons that is apportioned to such related person under
Sec. 1.861-9T(h)(2);
(B) The taxpayer's pro rata share of tangible assets held by the
related person (as determined under Sec. 1.861-9T(h)(1)(ii));
(C) The taxpayer's pro rata share of debt obligations of any
related person held by the related person (as valued under paragraph
(h)(4)(i) of this section); and
(D) The total value of stock in all related persons held by the
related person as determined under this paragraph (h)(4).
(iii)
Example. (A) Facts. USP, a domestic corporation, wholly owns
CFC1 and owns 80% of CFC2, both foreign corporations. The aggregate
trading value of USP's stock traded on established securities
markets at the end of Year 1 is $700 and the amount of USP's
liabilities to unrelated persons at the end of Year 1 is $400.
Neither CFC1 nor CFC2 has liabilities to unrelated persons at the
end of Year 1. USP owns plant and equipment valued at $500, CFC1
owns plant and equipment valued at $400, and CFC2 owns plant and
equipment valued at $250. The value of these assets has been
determined using generally accepted valuation techniques, as
required by Sec. 1.861-9(h)(1)(ii). There is an outstanding loan
from CFC2 to CFC1 in an amount of $100. There is also an outstanding
loan from USP to CFC1 in an amount of $200.
(B) Valuation of group assets. Pursuant to Sec. 1.861-
9T(h)(1)(i), the aggregate value of USP's assets is $1100 (the $700
trading value of USP's stock increased by $400 of USP's liabilities
to unrelated persons).
(C) Valuation of tangible assets. Pursuant to Sec. 1.861-
9T(h)(1)(ii), the value of USP's tangible assets and pro rata share
of assets held by CFC1 and CFC2 is $1100 (the plant and equipment
held directly by USP, valued at $500, plus USP's 100% pro rata share
of the plant and equipment held by CFC1 valued at $400 and USP's 80%
pro rata share of the plant and equipment held by CFC 2 valued at
$200 (80% of $250)).
(D) Computation of intangible asset value. Pursuant to Sec.
1.861-9T(h)(1)(iii), the value of the intangible assets of USP,
CFC1, and CFC2 is $0 (total aggregate group asset value ($1100)
determined in paragraph (B) less total tangible asset value ($1100)
determined in paragraph (C)). Because the intangible asset value is
zero, the provisions of Sec. 1.861-9T(h)(2) and (3) relating to the
apportionment and characterization of intangible assets do not
apply.
(E) Valuing related party debt obligations. Pursuant to Sec.
1.861-9(h)(4)(i), the value of the debt obligation of CFC1 held by
CFC2 is equal to the amount of the liability, $100. The value of the
debt obligation of CFC1 held by USP is equal to the amount of the
liability, $200.
(F) Valuing the stock of CFC1 and CFC2. Pursuant to Sec. 1.861-
9(h)(4)(ii), the value of the stock of CFC2 held by USP is $280
(USP's 80% pro rata share of tangible assets of CFC2 included in
paragraph (C) ($200) plus USP's 80% pro rata share of the debt
obligation of CFC1 held by CFC2 valued in paragraph (E) ($80). The
value of the stock of CFC1 held by USP is $100 (USP's 100% pro rata
share of tangible assets of CFC1 included in paragraph (C) ($400)
less USP's 100% pro
[[Page 41426]]
rata share of the liabilities of CFC1 to USP and CFC2 ($300)).
* * * * *
(k) * * * Paragraphs (e)(2), (e)(3) and (h)(4) apply to taxable
years beginning on or after July 16, 2014. See 26 CFR 1.861-9T(e)(2)
and (3) (revised as of April 1, 2014) for rules applicable to taxable
years beginning after January 17, 2012, and before July 16, 2014. See
26 CFR 1.861-9T(e)(2) and (3) (revised as of April 1, 2011) for rules
applicable to taxable years beginning on or before January 17, 2012.
See 26 CFR 1.861-9T(h)(4) (revised as of April 1, 2014) for rules
applicable to taxable years ending on or after January 17, 2012, and
beginning before July 16, 2014. See 26 CFR 1.861-9T(h)(4) (revised as
of April 1, 2011) for rules applicable to taxable years ending before
January 17, 2012.
0
Par. 3. Section 1.861-9T is amended by:
0
1. Revising paragraphs (e)(2), (e)(3), and (h)(4);
0
2. Removing the four sentences before the last sentence of paragraph
(k); and
0
3. Removing paragraph (l).
The revisions read as follows:
Sec. 1.861-9T Allocation and apportionment of interest expense
(temporary).
* * * * *
(e)(2) through (e)(3) [Reserved]. For further guidance see Sec.
1.861-9(e)(2) through (e)(3).
* * * * *
(h) * * *
(4) [Reserved]. For further guidance see Sec. 1.861-9(h)(4).
* * * * *
0
Par. 4. In Sec. 1.861-11, paragraphs (d)(3), (d)(4), (d)(5), and
(d)(6) are revised to read as follows:
Sec. 1.861-11 Special rules for allocating and apportioning interest
expense of an affiliated group of corporations.
* * * * *
(d)(3) through (6)(i) [Reserved]. For further guidance see Sec.
1.861-11T(d)(3) through (6)(i).
(ii) Any foreign corporation if more than 50 percent of the gross
income of such foreign corporation for the taxable year is effectively
connected with the conduct of a trade or business within the United
States and at least 80 percent of either the vote or value of all
outstanding stock of such foreign corporation is owned directly or
indirectly by members of the affiliated group (determined with regard
to this sentence). This paragraph (d)(6)(ii) applies to taxable years
beginning on or after July 16, 2014. See 26 CFR 1.861-11T(d)(6)(ii)
(revised as of April 1, 2014) for rules applicable to taxable years
beginning after August 10, 2010, and before July 16, 2014. See 26 CFR
1.861-11T(d)(6)(ii) (revised as of April 1, 2010) for rules applicable
to taxable years beginning on or before August 10, 2010.
* * * * *
0
Par. 5. Sec 1.861-11T is amended by:
0
1. Revising paragraph (d)(6)(ii);
0
2. Removing the last two sentences of paragraph (h); and
0
3. Removing paragraph (i).
The revision reads as follows:
1.861-11T. Special rules for allocating and apportioning interest
expense of an affiliated group of corporations (temporary).
* * * * *
(d) * * *
(6) * * *
(ii) [Reserved]. For further guidance see Sec. 1.861-11(d)(6)(ii).
* * * * *
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
Approved: June 17, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-16461 Filed 7-15-14; 8:45 am]
BILLING CODE 4830-01-P
