A newly private group may switch to tax book value

Plain-English summary

A domestic consolidated group had used fair market value to apportion interest expense while its parent was publicly traded. A foreign corporation acquired the parent, ending its publicly traded status. The group represented that continuing to use fair market value would create greater administrative burden and cost as a private company. The IRS authorized the group to use tax book value for the requested taxable year and future years. The approval covers interest expense apportionment for all operative Code sections, including sections 199 and 904.

Ruling snapshot

• Question: Could the consolidated group change valuation methods after becoming privately held?
• Outcome: Approved for the requested year and future years.
• Key authorities: IRC §§ 861, 864(e); Treas. Reg. §§ 1.861-8, 1.861-8T, 1.861-9T

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201744014                                            Third Party Communication: None
Release Date: 11/3/2017                                      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-113549-17
                                                             Date:
                                                             August 07, 2017


TY: ------

Legend

CORP A                     = ----------------------------------------
                             (EIN:--------------)
CORP B                     = ---------------------------------------------------------------
COUNTRY Z                  = --------
DATE 1                     = ------
DATE 2                     = ------
DATE 3                     = -----------------------

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

This is in response to your letter dated April 16, 2017 requesting a ruling on behalf of
CORP A’s consolidated group that the consolidated group members be permitted to
value their assets on the basis of the tax book value method of asset valuation for
purposes of the consolidated group’s ------- taxable year.

The rulings contained in this letter are based upon information and representations
submitted by CORP A 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.

CORP A, a domestic corporation, is a calendar year taxpayer that uses the accrual
method as its overall method of accounting. CORP A is the common parent of a group
of affiliated corporations that files a consolidated U.S. federal income tax return. CORP
A consolidated group utilized the fair market value method of asset valuation for taxable
years DATE 1 through DATE 2.
PLR-113549-17                                 2

Prior to DATE 3, CORP A was publicly-traded on the New York Stock Exchange. On
DATE 3, CORP B wholly acquired CORP A. CORP B is a corporation organized and
resident in COUNTRY Z. As a result of the acquisition, CORP A’s status as a publicly-
traded entity was terminated. CORP A cites to the increased administrative burden and
costs of continuing to use the fair market value of asset valuation as a non-publicly
traded entity as the primary reason for the request to be permitted to switch to the tax
book method value.

Section 864(e) of the Code 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 1.861-12 and Treas. Reg. §§ 1.861-8T through 1.861-13T set forth
the rules specific to the allocation and apportionment of interest expense. Treas. Reg.
1.861-9T(g)(1)(ii) provides that a taxpayer may elect to determine the value of its assets
on the basis of either 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) and Treas. Reg. §§ 1.861-8T(c)(2) and 1.861-9T(g)(1)(ii),
the CORP A consolidated group members may value their assets on the basis of the 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 the consolidated
group’s --------taxable year and future years.

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

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,



                                       Jeffrey L. Parry
                                       Senior Counsel, Branch 3
                                       (International)