In TEI's view, consistency in the use of methods would lessen this disparity and produce a more equitable result. Domestic assets are generally depreciated using an accelerated method, while foreign assets must be valued using the ADR/class lives system of section 168(g) of the Code. One of the major items causing distortion in the value of domestic and foreign assets is depreciation. A consistent allocation between foreign and domestic assets is key to ending the distortive effect. This result limits the appeal of the TBV method of valuation.
The TBV of domestic assets may, however, be significantly lower than the TBV of foreign assets, causing a disproportionate amount of interest to be allocated to income from foreign sources. Taxpayers generally prefer to use the TBV method of allocating interest expense because it is administratively easier to use than the FMV method, which requires annual appraisals and could lead to more audit disputes. Permission is not required to adopt the FMV method, but permission is required to change from FMV to TBV. Taxpayers may choose to calculate the value of their assets by using either the tax book value (TBV) or fair market value (FMV) method under Temp.
#IRC 861 CODE#
Section 864(e) of the Code provides the allocation and apportionment of interest expense to be made on the basis of assets rather than gross income.
#IRC 861 PROFESSIONAL#
We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the proposed regulations under section 861, relating to the allocation and apportionment of interest expense.Ī. Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. As a professional association, TEI is firmly committed to maintaining a tax system that works-one that is administrable and with which taxpayers can comply in a cost-efficient manner. TEI represents a cross-section of the business community, and is dedicated to developing and effectively implementing sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. Our more than 5,400 members represent 2,800 of the leading corporations in the United States, Canada, and Europe. Tax Executives Institute is the preeminent association of business tax executives in North America. Indeed, we believe that there are other areas (such as goodwill) where distortions may occur that would benefit from similar rules. TEI commends the IRS and Treasury for seeking to simplify the section 861 rules by adopting an alternative tax book value method for depreciation expense. The temporary and proposed regulations were published in the March 26, 2004, issue of the FEDERAL REGISTER, 69 FED. Department of the Treasury and Internal Revenue Service issued temporary and proposed regulations under section 861 of the Internal Revenue Code, relating to the use of an alternative tax book value method for allocating and apportioning interest expense.
The comments were prepared under the aegis of TEI's International Tax Committee whose chair is John J. Department of the Treasury and the Internal Revenue Service on the adoption of an alternative tax book value (TBV) method for depreciation expense for purposes of the allocation and apportionment of expenses under section 861 of the Internal Revenue Code. On September 17, 2004, Tax Executives Institute submitted the following comments to the U.S.
#IRC 861 FREE#
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