Interest apportionment may switch to tax book value

Plain-English summary

A domestic parent corporation had used the fair market value method to value assets when apportioning interest expense. Treasury regulations generally require a taxpayer and related persons to continue using that method unless the Commissioner expressly authorizes a change. The taxpayer asked to switch to the alternative tax book value method for a redacted taxable year and later years. Based on the submitted information and representations, the IRS approved the change for interest apportionment under all operative Code sections, including sections 199 and 904. The approval applies only to the requesting taxpayer.

Ruling snapshot

• Question: May the taxpayer change from fair market value to alternative tax book value for asset valuation in apportioning interest expense?
• Outcome: approved
• Key authorities: IRC § 864(e); Treas. Reg. §§ 1.861-8(f)(2), 1.861-8T(c)(2), 1.861-9(i), 1.861-9T(g)(1)(ii)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201702036 Third Party Communication: None
Release Date: 1/13/2017 Date of Communication: Not Applicable
Index Number: 861.09-00, 861.09-06,
861.09-07 Person To Contact:
------------------------, ID No. ------------------
----------------------- ----------------------------------------------------
-------------------------------- Telephone Number:
----------------------------------------- ----------------------
-------------------------------- Refer Reply To:
--------------------------------- CC:INTL:B03
PLR-129441-16
Date:
October 05, 2016

              TY: -------

Legend

Taxpayer = --------------------------------------------

Dear --------------:

This is in response to your representative’s letter dated September 20, 2016, requesting
a ruling on behalf of Taxpayer that it be permitted to change from the fair market value
method to the alternative tax book value method of asset valuation for purposes of
interest apportionment, pursuant to Treas. Reg. §§ 1.861-8T(c)(2), 1.861-9(i), and
1.861-9T(g)(1)(ii), for its ------- taxable year and subsequent years.

The ruling contained in this letter is based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an appropriate party. While this office has not verified any of the material submitted in
support of the request for rulings, it is subject to verification on examination.

Taxpayer, a domestic corporation, is the common parent of a group of affiliated
corporations that files a consolidated U.S. federal income tax return on a calendar year
basis. Taxpayer uses the accrual method as its overall method of accounting.
Taxpayer has utilized the fair market value method of asset valuation for several taxable
years prior to its ------- taxable year.

Section 864(e) provides that all allocations and apportionments of interest expense shall
be made on the basis of assets rather than gross income. Treas. Reg. §§ 1.861-8
through 1.861-13T set forth the rules specific to the allocation and apportionment of
interest expense. Treas. Reg. § 1.861-9(i) sets forth the rules applicable to use of the
alternative tax book value method of asset valuation. Treas. Reg. § 1.861-9T(g)(1)(ii)
PLR-129441-16 2

provides that a taxpayer may elect to determine the value of its assets on the basis of
either the tax book value or the fair market value of its assets. Treas. Reg. § 1.861-
8T(c)(2) provides that, once a taxpayer uses the fair market value method, the taxpayer
and all related persons must continue to use such method unless expressly authorized
by the Commissioner to change methods.

Based solely on the information submitted and the representations made, pursuant to
Treas. Reg. §§ 1.861-8(f)(2), 1.861-8T(c)(2), 1.861-9(i), and 1.861-9T(g)(1)(ii),
Taxpayer is permitted to change from the fair market value method to the alternative tax
book value method of asset valuation for purposes of apportioning interest expense for
all operative sections, including sections 199 and 904 of the Code, for its --------taxable
year and future years. .

This ruling is directed only to Taxpayer. Section 6110(k)(3) of the Code provides that it
may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representatives.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

                                   Sincerely,



                                   Richard L. Chewning
                                   Senior Counsel, Branch 3
                                   Office of Associate Chief Counsel (International)