SlideShare ist ein Scribd-Unternehmen logo
1 von 85
Downloaden Sie, um offline zu lesen
Allocation and Apportionment of Expenses,[object Object],April 19th -20th U.S. International Tax Compliance & ReportingRadisson Plaza –Warwick Hotel,[object Object],Edward Umling CPA, LLM,[object Object],UrishPopeck, LLC,[object Object],April 19-20, 2010,[object Object]
1,[object Object],We cover in this Module:,[object Object],Part 1 - How expense apportionment affects the foreign tax credit benefits.,[object Object],Providing key definitions for ,[object Object],class of income, ,[object Object],statutory groupings ,[object Object],residual groupings,[object Object]
2,[object Object],We cover in this Module: continued,[object Object],Part II - Application and apportionment of ,[object Object],interest expense,[object Object],research and experimental expenses ,[object Object],stewardship, ,[object Object],state taxes and charitable deductions,[object Object],Part III - Adopting a plan to apportion selling, general and administrative expenses,[object Object]
Part 1 - How expense apportionment affects the foreign tax credit benefits.,[object Object],3,[object Object]
Example - How expense apportionment affects the foreign tax credit benefits.,[object Object],4,[object Object],[object Object],,[object Object],The Limitation Equation,[object Object],U.S. Tax Liability,[object Object],Foreign Source Taxable Income,[object Object],X,[object Object],World-wide Taxable Income,[object Object]
5,[object Object],How expense apportionment affects the foreign tax credit benefits.,[object Object],Foreign Source Taxable Income,[object Object],1,020,[object Object],x,[object Object],2,380,[object Object],=,[object Object],World-wide taxable income,[object Object],Foreign Tax Credit Limitation,[object Object]
Results,[object Object],6,[object Object],,[object Object]
7,[object Object],Re-allocate an expense item of 500 to Foreign Source Income,[object Object],Foreign Source Taxable Income,[object Object],850,[object Object],x,[object Object],2,380,[object Object],=,[object Object],World-wide taxable income,[object Object],Limitation,[object Object]
8,[object Object],,[object Object],Results Compared,[object Object]
FTC Interaction with Qualified Productions Activities Income,[object Object],A deduction is allowed for a taxpayers “qualified production activities income” which is currently 6% for 2009 and 9% thereafter.  QPAI  is actually DPGR less certain costs and expenses.,[object Object],There are three categories of costs and  expenses; cost of goods sold allocable to DPGR, other expenses directly allocable and expenses not directly allocable,[object Object],9,[object Object]
Expense Allocation for QPAI,[object Object],Treasury Regulations allow three methods for allocating and apportioning expenses for purposes of §199. ,[object Object],The principal method ,[object Object], The §861 method  ,[object Object],simplified deduction method,[object Object],10,[object Object]
861 method = “preferred method”,[object Object],The Consistency Rule,[object Object],If a taxpayer applies the allocation and apportionment rules of the IRC §861 regulations for one operative section, (i.e., to allocate expenses to FSI for the FTC) limitation the taxpayer must apply the same method of allocation and the same principles of apportionment to other operative sections such as calculating the QPAD,[object Object],11,[object Object]
12,[object Object],Exception to the Consistency Rule,[object Object],Net operating losses not apportioned to QPAI,[object Object],Charitable contributions are apportioned ratably between QPAI and non-QPAI,[object Object],Research & Experimental expenses are allocated and apportioned to QPAI without  taking into account the exclusive apportionment applicable to the FTC limitation calculations,[object Object]
13,[object Object],The QPAI Deduction and the FTC benefits,[object Object],Understand first…there are competing objectives with regard to expense allocations between the foreign tax credit (“FTC”) limitation and the domestic production activity deduction (“DPAD”),[object Object],The objective of the Foreign Tax Credit Limitation mechanism is to maximizes foreign source taxable income,[object Object],The objective of the DPAD is to maximize the domestic production activities income deduction,[object Object]
14,[object Object],Understand the Equations,[object Object],,[object Object],The Limitation Equation,[object Object],U.S. Tax Liability,[object Object],Foreign Source Taxable Income,[object Object],X,[object Object],World-wide Taxable Income,[object Object],Stated another way…FSI x 35%,[object Object],	DPAD for 2008 = 6% of qualified production activity income (“QPAI”) then you take that result and multiply by the tax rate (i.e. 35%),[object Object]
15,[object Object],Interest Allocations & Apportionment affects FTC benefits,[object Object],How is interest expense allocated,[object Object],Fair Market Value of assets,[object Object],Tax Book Value (Average assets),[object Object],Alternate Tax Book Value (Straight Line),[object Object]
,[object Object],Consider,[object Object],How are U.S. assets depreciated?,[object Object],Is the consolidated U.S. tax balance sheet weighted unfairly to foreign assets because consolidating adjustments effectively eliminate: investments in U.S. subsidiaries, U.S. intercompany loans and U.S. intercompany accounts receivable? ,[object Object],How are assets located outside the U.S. depreciated?,[object Object],Which assets have the higher TBV?,[object Object],Where does more of the interest get allocated? ,[object Object],16,[object Object]
Example – allocate 100  of Interest,[object Object],U.S. MACRS,[object Object],Foreign Straight Line,[object Object],17,[object Object],100,[object Object],40%,[object Object],60%,[object Object]
18,[object Object],,[object Object],Remember the Example?,[object Object],	Unutilized FTC,[object Object]
19,[object Object],Stewardship Expenses affects FTC benefits,[object Object],Stewardship and other oversight expenses reduce foreign source taxable income for the FTC limitation, but not QPAI ,[object Object],[object Object],[object Object]
21,[object Object],Research & Development Consistency,[object Object],Two Methods to allocate R&D to the FTC limitation: gross income method or the sales method ,[object Object],Grouping using 3 digit SIC codes,[object Object],Specific Allocations:,[object Object],Government regulations,[object Object],For market development,[object Object]
22,[object Object],Selling General & Administrative (“SG&A”) ,[object Object],Generally SG&A other than those previously discussed are allocated rather than apportioned.,[object Object],,[object Object],Remember,[object Object],Allocation is fact based. Identify relevant drivers and allocate the expenses to the income of those drivers,[object Object]
Understanding key definitions for a class of income, statutory and residual groupings and gross income apportionment,[object Object]
Expense Apportionment ,[object Object],Guidelines are provided in Treas. Reg. 1.861-8 for allocating and apportioning deductions.  Specific expenses are enumerated along with the treatment for allocating and apportioning.,[object Object],Items that represent capital expenditures are not allocated and apportioned because they are included in the basis of another asset.  This would represent items under UNICAP.,[object Object],24,[object Object]
25,[object Object],Where are the rules located?,[object Object],Treasury Regulation 1.861-8,[object Object],Computation of taxable income from sources within and without the United States ,[object Object]
26,[object Object],Definition - Allocation,[object Object],Allocation – expenses assigned based upon a factual relationship to certain classes of income (i.e. business income, rents, royalties, interest, and dividends). ,[object Object],In other words, if an expense is incurred as a result of or incident to or in connection with an activity then, that expense is allocated to the income of that activity to which it is attributable (referred to as a class of income),[object Object],Keys…expense incurred (1) as a result of, (2) incident to or (3) in connection with ,[object Object]
27,[object Object],Example 1 – statutory and residual groupings,[object Object],Assume a domestic corporation manufactures in the United States and sells through its foreign branch. Assume the independent factory price (“IFP”) method is used for dividing gross income  between U.S. source manufacturing income and foreign source sales income.,[object Object],US Co,[object Object],Mfg,[object Object],branch rules discussed in separate module,[object Object],Branch,[object Object],Sales,[object Object]
28,[object Object],Example 1 - results,[object Object],[object Object]
Expense related to the manufacturing process are definitely related to US source gross income (referred to as a residual grouping) and are therefore excluded in determining FSIUS Co,[object Object],Mfg,[object Object],Branch,[object Object],Sales,[object Object]
29,[object Object],Terminology for Allocation &  Apportionment,[object Object],Residual Grouping,[object Object],US Co,[object Object],Mfg,[object Object],Branch,[object Object],Sales,[object Object],Statutory Grouping,[object Object],Income is determined by Statute or Code Section,[object Object]
30,[object Object],Explanation,[object Object],Statutory Grouping -  means the gross income from a specific source or activity which must first be determined in order to arrive at taxable income… under an operative section for example:,[object Object],FSI,[object Object],ECI,[object Object],Subpart F,[object Object]
31,[object Object],Definitions,[object Object],The previous example leads to another term that needs defined “Apportionment”,[object Object],If a deduction is definitely related to a class of gross income that includes income in a statutory grouping and the residual grouping….an “apportionment” is required.,[object Object]
32,[object Object],Example 1 - expanded,[object Object],Assume domestic company incurs management expenses in connection with the manufacturing and sale of its goods. ,[object Object],Since the management expenses relate to all of the domestic company’s activities they are definitely related to a class of gross income that includes both U.S. and foreign source income. ,[object Object],Because the expenses fall partly in the statutory grouping and partly in the residual grouping they must beapportioned between the two groups.,[object Object]
33,[object Object],Terminology for Allocation &  Apportionment,[object Object],Incurs Management Expenses,[object Object],US Co,[object Object],Mfg,[object Object],Branch,[object Object],Sales,[object Object],Management Expenses also relate to branch sales,[object Object],Management Expenses are “Apportioned” between Statutory and Residual groupings,[object Object]
34,[object Object],,[object Object],Question,[object Object],Incurs Management Expenses of 100,[object Object],How much is “Apportioned” between each entity,[object Object],US Co,[object Object],Mfg,[object Object],Branch,[object Object],Sales,[object Object]
35,[object Object],,[object Object],Question,[object Object],Apportionment by,[object Object],Incurs Management Expenses of 100,[object Object],[object Object]
Gross receipts
Gross income
Cost of goods sold
Assets used
Space used
Production hours
Any other reasonable methodUS Co,[object Object],Mfg,[object Object],Branch,[object Object],Sales,[object Object]
36,[object Object],,[object Object],Debrief,[object Object],FTC benefits are affected by Expense Allocation & Apportionment,[object Object],Defined terms by example,[object Object],Classes of income (i.e. business income, rents, royalties, interest, and dividends),[object Object],Allocation & Apportionment to…  ,[object Object],Statutory Groupings,[object Object],Residual Groupings,[object Object]
37,[object Object],Debrief - How is Allocation Accomplished?,[object Object],,[object Object],Allocation is accomplished by determining, with respect to each deduction, the class of gross income to which the deduction is definitely related and then allocating such deduction to such class of gross income.,[object Object],Note	,[object Object],A deduction shall be considered definitely related to a class of gross income if expense incurred ,[object Object],(1) as a result of, (2) incident to or (3) in connection with,[object Object]
38,[object Object],Debrief - How is Apportionment Accomplished?,[object Object],,[object Object],Expenses have to be allocated and apportioned to statutory classes of income even if that particular class does not have any income.  ,[object Object],Consider the example of a U.S. company that owns several foreign subsidiaries that have not paid any dividends,[object Object],The U.S. company has a statutory class of income: dividends from foreign subsidiaries,[object Object], Interest, R&D, G&A, etc. would be allocated to this class of income,[object Object],Allocations can create an overall foreign loss (“OFL”) ,[object Object]
39,[object Object],Debrief - How is Apportionment Accomplished?,[object Object],,[object Object],An apportionment must be done in a way that reflects to a reasonable extent the factual relationship between a deduction and the grouping of gross income (Treas. Reg 1.861-8T(C)(1)),[object Object],Acceptable Methods,[object Object],Number of units sold,[object Object],Gross receipts,[object Object],Assets used,[object Object],Space used or time spent,[object Object]
40,[object Object],Part II of this Module,[object Object],Application and apportionment of,[object Object], Interest expense,[object Object],Research expenses,[object Object],Stewardship expenses,[object Object],State tax,[object Object],Charitable contributions,[object Object]
41,[object Object],Interest Expense,[object Object],Interest expense relates to all of a taxpayers activities and assets and therefore is apportioned based on the basis of assets rather than gross income. Note: Asset values determined under tax book value, fair market value or alternative tax book value,[object Object],Theoretically allocated to classes of gross income in proportion to assets that generate or can reasonably be expected to generate such income,[object Object],Generally use average of BOY and EOY assets, (monthly average may be required in case of significant acquisition or dispositions during the year),[object Object]
Treas. Reg. §1.861-9T(j),[object Object],May elect to apportion interest of all CFCs under the “modified gross income”  method as described in Reg. §1.861-9T(j),[object Object],However, this election is not available to a CFC if a US shareholder and affiliates constitute a controlling shareholder and the CFC elects FMV method.,[object Object],42,[object Object]
43,[object Object],Interest Expense,[object Object],Example Asset Method,[object Object],Assume interest expense of 200 for the year and average net assets is 4,000 which includes 800 of net assets used in activities that generate FSI,[object Object]
44,[object Object],Interest Expense,[object Object],Step 1 – determine the apportionment amount for the statutory grouping first and then apportion balance to the residual grouping,[object Object],Result,[object Object],Statutory grouping (800/4,000) x 200 = 40 of interest,[object Object],Residual grouping 160  (200-40) ,[object Object]
45,[object Object],A Formula to Allocate Interest Expense,[object Object],Assets of affiliate group generating foreign source income,[object Object],	Interest expense apportioned to foreign source,[object Object],	U.S. interest expense,[object Object],x,[object Object],=,[object Object],	Total average net assets of the affiliate group,[object Object],The numerator includes investments in foreign subsidiaries, net E&P of foreign subsidiaries, loans to foreign subsidiaries, accounts receivable applicable to sales with foreign title passage, other assets of foreign branches and directly owned disregarded entities, etc.  ,[object Object]
TBV v. FMV AllocationWhat’s the difference?,[object Object],The FMV may be advantages where US assets are fully depreciated or have a low tax basis and those assets possess a higher FMV. Taxpayer has highly appreciated domestic assets.,[object Object],This occurs where US assets have been subjected to accelerated depreciation and subject to a greater depreciation percentage than foreign assets.  (note the ATBV may mitigate this problem),[object Object],46,[object Object]
FMV method,[object Object],The FMV election does not require the consent of the IRS. However, once the fair market value method has been elected, it may only be changed with the permission of the IRS. ,[object Object],Retroactive Application? Yes,[object Object],Ralston Purina v. Comr., ,[object Object],47,[object Object]
FMV Method,[object Object],Step 1. Determine aggregate value of all assets,[object Object],Step 2. Determine value all assets of taxpayer and percentage of assets related persons not including stock or indebtedness and intangibles in related persons ,[object Object],Step 3. Subtract step 2 from step 1 and apportion the difference between the taxpayer and the related persons on net income before interest and taxes, excluding passive income.,[object Object],Step 4. Determine value of U.S. taxpayer’s stock in related persons,[object Object],48,[object Object]
Alternative tax book value method,[object Object],Similar to TBV, but allows use of Alternate Deprecation method to determine TBV of U.S. assets, which is consistent with method used to determine TBV of foreign assets that are depreciated.,[object Object],Should result in higher tax basis in U.S. than the TBV method which uses accelerated  depreciation in valuing US assets. ,[object Object],This may be easier and less costly than FMV method ,[object Object],49,[object Object]
Debrief Summary,[object Object],,[object Object],Application of TBV, FMV or ATBV method,[object Object],May elect FMV on an amended return for open tax years. ,[object Object],Once you elect a method you must stay on that method for five years.,[object Object],50,[object Object]
51,[object Object],Research and Experimental,[object Object],Rules are covered under Treasury Regulation §1.861-17 ,[object Object],Example ,[object Object],Where a taxpayer performs tests on a product in response to a requirement imposed by the U.S. Food and Drug Administration, and the test results cannot reasonably be expected to generate amounts of gross income (beyond de minimis amounts) outside the United States, the costs of testing shall be allocated solely to gross income from sources within the United States. The remainder of R&D costs are allocated and apportioned, at the taxpayers election, by the  sales method or the gross income method.  ,[object Object]
52,[object Object],Research and Experimental,[object Object],The regulations require taxpayers to segregate income into specified product categories and then match related R& E expenses with that income. ,[object Object],This prevents R& E expenses incurred in one business line from reducing taxable income from a separate business line.  ,[object Object],For example, R& E performed for a taxpayer's chemical business should not reduce that taxpayer's income from a separate textile mill business.,[object Object]
53,[object Object],Research and Experimental,[object Object],,[object Object],Step 1,[object Object],Allocate to gross income in the Broad Product Categories (i.e. 3 digit SIC Code). ,[object Object]
54,[object Object],Research and Experimental,[object Object],,[object Object],Step 2,[object Object],Identify Legally Mandated Research & Experimentation,[object Object],R&E undertaken solely to meet legal requirements in a particular geographic area ,[object Object],This definitely related R&D is allocable ONLY to the group or groupings of gross income within that geographic area,[object Object]
55,[object Object],Research and Experimental,[object Object],,[object Object],Step 3,[object Object],Identify whether 50% or more of the R&E efforts take place in a specific geographic area, i.e., the U.S., the UK, etc.? ,[object Object],If the “Geographic Source Test” is met then, depending upon which allocation method is used, either 25% or 50% of the R&D is allocated to the geographical source ,[object Object]
56,[object Object],Research and Experimental,[object Object],What if exclusive apportionment does not exist,[object Object],If 50% requirement is not met then there is no geographic apportionment. All R&D expenses are apportioned under the sales method or the gross income method.,[object Object],This could happen if R&D activities are de-centralized and no particular geographic source accounts for more than 50% of the expenses,[object Object]
57,[object Object],R&E: Exclusive Apportionment,[object Object],There are two methods to allocate and apportion the exclusively apportioned R&D amount to the statutory and residual groupings which a taxpayer can choose or elect,[object Object],Sales Method (50%) ,[object Object],(Optional) Gross Income Method (25%),[object Object],Example: Sales Method,[object Object],Assume taxpayer's total R & E expense of $1,000 for the products falling within SIC Code 363, $750 is incurred within the United States.,[object Object]
58,[object Object],R&E: Exclusive Apportionment,[object Object],Under the sales method a taxpayer can exclusively apportion 50% of its R&E expenses within that product category (i.e., $500) to U.S. - source income (the residual grouping in this case) , thereby reducing the amount of R& E apportioned to foreign-source income.  ,[object Object],The remaining $500 of R& E expenses would then be apportioned by a mathematical equation For instance, sales in a particular SIC category divided by total sales,[object Object]
59,[object Object],Optional Gross Income Method,[object Object],Under the gross income method 25% of the exclusively apportioned R&E is apportioned exclusively to the applicable geographic source then, remainder of the R&E is allocated based upon gross income.,[object Object]
60,[object Object],Optional Gross Income Method,[object Object],Two requirements accompany the sales method:,[object Object],The amount allocated and apportioned under the statutory grouping must be at least 50%of the amount determined under the sales method,[object Object],The amount allocated and apportioned under the residual grouping must be at least 50%of the amount determined under the sales method,[object Object],If either of the two preceding tests are failed then an adjustment is made to bring the allocated amount of R&D within the 50% amount determined using the sales method ,[object Object]
61,[object Object],Comprehensive Example ,[object Object],Alcan manufactures and distributes aluminum machines and incurred $60,000 of R&D in the U.S.  Its products fall within the same SIC category.  Alcan’s wholly owned subsidiary in Australia manufactures and sells the aluminum machines in Europe using the technology  developed by Alcan.,[object Object]
62,[object Object],Comprehensive Example,[object Object]
63,[object Object],Sales Method,[object Object],½ of R&D allocated exclusively to the U.S.  Remainder is apportioned,[object Object],Statutory Grouping  30,000 X 300,000 / 800,000 = 11,250,[object Object],Residual Grouping  30,000 X  500,000 / 800,000 = 18,750,[object Object],U.S. is apportioned 48,750,[object Object],[30,000 + 18,750],[object Object]
64,[object Object],Optional Gross Income Method,[object Object],25% of R&D allocated exclusively to the U.S.  Remainder is apportioned,[object Object],Residual Grouping 15,000   ,[object Object],45,000 x 150,000 / 160,000 =    57,188 – U.S. Residual Grouping  ,[object Object],45,000 x   10,000 / 160,000 =      2,812 –  FSI Statutory Grouping,[object Object],Alcan Gross profit =   140,000,[object Object],Australian royalties =   10,000,[object Object],Interest Income =          10,000,[object Object],Total Gross income = 160,000,[object Object],Rule – must be at least 50% of what it would otherwise be under the sales method,[object Object]
65,[object Object],Optional Gross Income Method,[object Object],Residual Grouping 15,000   ,[object Object],45,000 - 140,000 / 150,000 =  43,375 –  U.S. Residual Grouping  ,[object Object],45,000 -   10,000 / 150,000 =    5,625 –  Statutory Grouping,[object Object],Increase R&E allocated to statutory grouping  to 50% of what it would be under the sales method 11,250 x 50%  = 5,625,[object Object]
66,[object Object],Choice of Sales Method or Gross Income Method,[object Object],	Taxpayers must generally follow a particular method for 5 years and after the 5 year period they can change to the other method and follow that method for 5 years [Treas. Reg. 1.861-17(e)],[object Object]
67,[object Object],R&E Allocations,[object Object],In general, regardless of whether a taxpayer applies the sales method or the gross income method, the allocation and apportionment of R&D within an affiliated group is determined as if all members were a single corporation [1.861-14T],[object Object]
68,[object Object],Stewardship,[object Object],Stewardship activities are overseeing activities and functions  undertaken to supervise an investment in another entity. ,[object Object],The regulations view expenses relating to stewardship or overseeing functions as being incurred as a result of, or incident to, the payor corporation's ownership of stock in the related corporation. ,[object Object],Accordingly, the regulations treat such expenses as definitely related and allocable to dividends received or to be received from the related corporation. ,[object Object]
69,[object Object],Stewardship,[object Object],The IRS has indicated that stewardship expenses include,[object Object],the cost of duplicative review or performance of activities already undertaken by the subsidiary; ,[object Object], the cost of periodic visitations and general review of the subsidiary's performance; ,[object Object],the cost of complying with reporting requirements or other legal requirements that the subsidiary would not incur but for being part of the affiliated group; and ,[object Object]
70,[object Object],Stewardship,[object Object],The IRS has indicated that stewardship expenses include: ,[object Object],the cost of financing or refinancing the parent's ownership participation in the subsidiary. ,[object Object],An example in the Treasury Regulations under Code Sec. 861 also indicates stewardship expenses include the costs of auditors from the parent's accounting department, and the costs of the parent's treasurer. ,[object Object]
71,[object Object],Charitable Contributions,[object Object],Under the 2005 final regulations, a charitable contribution deduction allowed under Sections 170 , 873(b)(2) , and 882(c)(1)(B) is treated as definitely related and allocable to all of the taxpayer's gross income.,[object Object],The contribution is then apportioned between the statutory grouping (or among the statutory groupings) of gross income and the residual groupings of gross income on the basis of the relative amounts of U.S.-source gross income in each grouping. ,[object Object]
72,[object Object],State Income Taxes,[object Object],State income taxes are treated as definitely related and allocable to the gross income with respect to which taxes are imposed.,[object Object],If a corporation subjects foreign source income to taxation, that portion of state tax definitely related and allocable to FSI,[object Object],In general, state income taxes are allocable and apportioned based upon state taxable income,[object Object]
73,[object Object],State Income Taxes,[object Object],State income tax is allocated and apportioned to foreign source income only if the sum of the entity's state taxable income exceeds its federal domestic source taxable income,[object Object]
74,[object Object],State Income Taxes,[object Object],Treasury Regulation 1.861-8 Example 25,[object Object],Domestic Company operates in three states, A, B and C and also has a foreign branch in another country,[object Object],Federal taxable income is as follows:,[object Object],150,000 = net FSI,[object Object],800,000 = net U.S. source income,[object Object],FSI is taxable in all three states,[object Object]
75,[object Object],State Income Taxes Data for Example 25,[object Object]
76,[object Object],State Income Taxes,[object Object],State taxes of 69,000 are related to and allocable to the gross income on which the taxes were imposed,[object Object],No exemption for FSI,[object Object],Taxable income > domestic federal income,[object Object],800,000 of US-source and 150,000 of FSI,[object Object],(950,000-800,000) =FSI,[object Object]
77,[object Object],State Income Taxes  Apportionment,[object Object],Foreign Source:,[object Object],69,000 x (150,000/950,000) = 10,895 allocated to net FSI ,[object Object],69,000 x (800,000/950,000) = 58,105 allocated to net U.S. source income ,[object Object]

Weitere ähnliche Inhalte

Was ist angesagt?

2013 cch basic principles ch16 pi
2013 cch basic principles ch16 pi2013 cch basic principles ch16 pi
2013 cch basic principles ch16 pidphil002
 
ACCT 321 Chapter 11
ACCT 321 Chapter 11ACCT 321 Chapter 11
ACCT 321 Chapter 11iDocs
 
Residential property tax planning (UK)
Residential property tax planning (UK)Residential property tax planning (UK)
Residential property tax planning (UK)MAH_Accountants
 
2013 cch basic principles ch18
2013 cch basic principles ch182013 cch basic principles ch18
2013 cch basic principles ch18dphil002
 
2013 cch basic principles ch16 piii
2013 cch basic principles ch16 piii2013 cch basic principles ch16 piii
2013 cch basic principles ch16 piiidphil002
 
International Taxation - Tax Research Paper
International Taxation - Tax Research PaperInternational Taxation - Tax Research Paper
International Taxation - Tax Research PaperKesha Haley
 
Kaiser taxation of settlements and judgments
Kaiser   taxation of settlements and judgmentsKaiser   taxation of settlements and judgments
Kaiser taxation of settlements and judgmentskrk811
 
Chapter 5 presentation
Chapter 5 presentationChapter 5 presentation
Chapter 5 presentationdphil002
 
Dividend – income tax
Dividend – income taxDividend – income tax
Dividend – income taxkaustubhpd
 
Doing business in the united states presentation 101028 (1)
Doing business in the united states   presentation 101028 (1)Doing business in the united states   presentation 101028 (1)
Doing business in the united states presentation 101028 (1)Denis Dovgopoliy
 
2013 cch basic principles ch12
2013 cch basic principles ch122013 cch basic principles ch12
2013 cch basic principles ch12dphil002
 
Allowable deductions.feb.2011
Allowable deductions.feb.2011Allowable deductions.feb.2011
Allowable deductions.feb.2011Phil Taxation
 
An Introduction to Tax Treaties
An Introduction to Tax TreatiesAn Introduction to Tax Treaties
An Introduction to Tax TreatiesFrancoise Hendy
 
Opt extensive and overview of excise tax. dst and ctc.feb.2011
Opt extensive and overview of excise tax. dst and ctc.feb.2011Opt extensive and overview of excise tax. dst and ctc.feb.2011
Opt extensive and overview of excise tax. dst and ctc.feb.2011Phil Taxation
 
Module 1 Introduction To International Tax
Module 1 Introduction To International TaxModule 1 Introduction To International Tax
Module 1 Introduction To International TaxUmling
 
Financial Management Slides Ch 02
Financial Management Slides Ch 02Financial Management Slides Ch 02
Financial Management Slides Ch 02Sayyed Naveed Ali
 

Was ist angesagt? (20)

Tax treaties
Tax treaties Tax treaties
Tax treaties
 
2013 cch basic principles ch16 pi
2013 cch basic principles ch16 pi2013 cch basic principles ch16 pi
2013 cch basic principles ch16 pi
 
ACCT 321 Chapter 11
ACCT 321 Chapter 11ACCT 321 Chapter 11
ACCT 321 Chapter 11
 
Residential property tax planning (UK)
Residential property tax planning (UK)Residential property tax planning (UK)
Residential property tax planning (UK)
 
2013 cch basic principles ch18
2013 cch basic principles ch182013 cch basic principles ch18
2013 cch basic principles ch18
 
2013 cch basic principles ch16 piii
2013 cch basic principles ch16 piii2013 cch basic principles ch16 piii
2013 cch basic principles ch16 piii
 
Chapter 4 tax
Chapter 4 taxChapter 4 tax
Chapter 4 tax
 
International Taxation - Tax Research Paper
International Taxation - Tax Research PaperInternational Taxation - Tax Research Paper
International Taxation - Tax Research Paper
 
Kaiser taxation of settlements and judgments
Kaiser   taxation of settlements and judgmentsKaiser   taxation of settlements and judgments
Kaiser taxation of settlements and judgments
 
Chapter 5 presentation
Chapter 5 presentationChapter 5 presentation
Chapter 5 presentation
 
Dividend – income tax
Dividend – income taxDividend – income tax
Dividend – income tax
 
MNC tax implications
MNC tax implicationsMNC tax implications
MNC tax implications
 
Doing business in the united states presentation 101028 (1)
Doing business in the united states   presentation 101028 (1)Doing business in the united states   presentation 101028 (1)
Doing business in the united states presentation 101028 (1)
 
2013 cch basic principles ch12
2013 cch basic principles ch122013 cch basic principles ch12
2013 cch basic principles ch12
 
Allowable deductions.feb.2011
Allowable deductions.feb.2011Allowable deductions.feb.2011
Allowable deductions.feb.2011
 
International Taxation Overview & Update
International Taxation Overview & UpdateInternational Taxation Overview & Update
International Taxation Overview & Update
 
An Introduction to Tax Treaties
An Introduction to Tax TreatiesAn Introduction to Tax Treaties
An Introduction to Tax Treaties
 
Opt extensive and overview of excise tax. dst and ctc.feb.2011
Opt extensive and overview of excise tax. dst and ctc.feb.2011Opt extensive and overview of excise tax. dst and ctc.feb.2011
Opt extensive and overview of excise tax. dst and ctc.feb.2011
 
Module 1 Introduction To International Tax
Module 1 Introduction To International TaxModule 1 Introduction To International Tax
Module 1 Introduction To International Tax
 
Financial Management Slides Ch 02
Financial Management Slides Ch 02Financial Management Slides Ch 02
Financial Management Slides Ch 02
 

Andere mochten auch

Reptilia classification by deepak rawal
Reptilia classification by deepak rawalReptilia classification by deepak rawal
Reptilia classification by deepak rawalDr Deepak Rawal
 
Marginal Costing vs Absorption Costing - ACCA - F5
Marginal Costing vs Absorption Costing - ACCA - F5Marginal Costing vs Absorption Costing - ACCA - F5
Marginal Costing vs Absorption Costing - ACCA - F5Jessy Chong
 
Overhead analysis
Overhead analysisOverhead analysis
Overhead analysisgk44
 
Overheads in Cost Accounting-B.V.Raghunandan
Overheads in Cost Accounting-B.V.RaghunandanOverheads in Cost Accounting-B.V.Raghunandan
Overheads in Cost Accounting-B.V.RaghunandanSVS College
 

Andere mochten auch (7)

Reptilia classification by deepak rawal
Reptilia classification by deepak rawalReptilia classification by deepak rawal
Reptilia classification by deepak rawal
 
Marginal Costing vs Absorption Costing - ACCA - F5
Marginal Costing vs Absorption Costing - ACCA - F5Marginal Costing vs Absorption Costing - ACCA - F5
Marginal Costing vs Absorption Costing - ACCA - F5
 
Cost allocation
Cost allocationCost allocation
Cost allocation
 
Absorption costing
Absorption costingAbsorption costing
Absorption costing
 
Overhead analysis
Overhead analysisOverhead analysis
Overhead analysis
 
Overhead
OverheadOverhead
Overhead
 
Overheads in Cost Accounting-B.V.Raghunandan
Overheads in Cost Accounting-B.V.RaghunandanOverheads in Cost Accounting-B.V.Raghunandan
Overheads in Cost Accounting-B.V.Raghunandan
 

Ähnlich wie Umling Expense Apportioning

The Equity Method Of Accounting For Investments
The Equity Method Of Accounting For InvestmentsThe Equity Method Of Accounting For Investments
The Equity Method Of Accounting For InvestmentsLindsey Jones
 
Michigan Business Tax Case Study
Michigan Business Tax Case StudyMichigan Business Tax Case Study
Michigan Business Tax Case StudySamHodges
 
Understanding And Planning For UBIT
Understanding And Planning For UBITUnderstanding And Planning For UBIT
Understanding And Planning For UBITBrian T. Whitlock
 
PWC Doing-business-in-the-us-2015
PWC Doing-business-in-the-us-2015PWC Doing-business-in-the-us-2015
PWC Doing-business-in-the-us-2015PwC
 
repot international accounting.docx
repot international accounting.docxrepot international accounting.docx
repot international accounting.docxIqramahammedAhmed
 
New Legislation Enhances the Benefits of a Section 1042 Tax-Deferred Sale
New Legislation Enhances the Benefits of a Section 1042 Tax-Deferred SaleNew Legislation Enhances the Benefits of a Section 1042 Tax-Deferred Sale
New Legislation Enhances the Benefits of a Section 1042 Tax-Deferred SaleChristopher T. Horner II
 
International Business PracticesGeoff BrownProfessor DuhnA.docx
International Business PracticesGeoff BrownProfessor DuhnA.docxInternational Business PracticesGeoff BrownProfessor DuhnA.docx
International Business PracticesGeoff BrownProfessor DuhnA.docxnormanibarber20063
 
International Taxation - BEPS Pillar 1 _ Pillar 2 Overview.pdf
International Taxation - BEPS Pillar 1 _ Pillar 2 Overview.pdfInternational Taxation - BEPS Pillar 1 _ Pillar 2 Overview.pdf
International Taxation - BEPS Pillar 1 _ Pillar 2 Overview.pdfSteadfast Business Consulting
 
Essay Ac553 You Decide Week 4
Essay Ac553 You Decide Week 4Essay Ac553 You Decide Week 4
Essay Ac553 You Decide Week 4Theresa Singh
 
Chapter21 International Finance Management
Chapter21 International Finance ManagementChapter21 International Finance Management
Chapter21 International Finance ManagementPiyush Gaur
 
Tax audit series under section 44AB
Tax audit series under section 44ABTax audit series under section 44AB
Tax audit series under section 44ABCA. Pramod Jain
 
Questions On Tax Savvy, Class 1, Cash, Demand Deposits,...
Questions On Tax Savvy, Class 1, Cash, Demand Deposits,...Questions On Tax Savvy, Class 1, Cash, Demand Deposits,...
Questions On Tax Savvy, Class 1, Cash, Demand Deposits,...April Bell
 
Federal Taxation Article Brief Essay
Federal Taxation Article Brief EssayFederal Taxation Article Brief Essay
Federal Taxation Article Brief EssayMary Stevenson
 
Introduction to transfer pricing
Introduction to transfer pricingIntroduction to transfer pricing
Introduction to transfer pricingTechnip
 
The Equity Method Records Dividends
The Equity Method Records DividendsThe Equity Method Records Dividends
The Equity Method Records DividendsKari Jorgenson
 
An Annual Report On Balance Sheet And Income Statement
An Annual Report On Balance Sheet And Income StatementAn Annual Report On Balance Sheet And Income Statement
An Annual Report On Balance Sheet And Income StatementAngel Ashford
 
Myer Holding Limited Annual Report 2014
Myer Holding Limited Annual Report 2014Myer Holding Limited Annual Report 2014
Myer Holding Limited Annual Report 2014Alyssa Dennis
 
Vietnam Accounting Standards - VAS 28 Segment reporting
Vietnam Accounting Standards - VAS 28 Segment reportingVietnam Accounting Standards - VAS 28 Segment reporting
Vietnam Accounting Standards - VAS 28 Segment reportingAC&C Consulting Co., Ltd.
 

Ähnlich wie Umling Expense Apportioning (20)

The Equity Method Of Accounting For Investments
The Equity Method Of Accounting For InvestmentsThe Equity Method Of Accounting For Investments
The Equity Method Of Accounting For Investments
 
Michigan Business Tax Case Study
Michigan Business Tax Case StudyMichigan Business Tax Case Study
Michigan Business Tax Case Study
 
Understanding And Planning For UBIT
Understanding And Planning For UBITUnderstanding And Planning For UBIT
Understanding And Planning For UBIT
 
PWC Doing-business-in-the-us-2015
PWC Doing-business-in-the-us-2015PWC Doing-business-in-the-us-2015
PWC Doing-business-in-the-us-2015
 
repot international accounting.docx
repot international accounting.docxrepot international accounting.docx
repot international accounting.docx
 
New Legislation Enhances the Benefits of a Section 1042 Tax-Deferred Sale
New Legislation Enhances the Benefits of a Section 1042 Tax-Deferred SaleNew Legislation Enhances the Benefits of a Section 1042 Tax-Deferred Sale
New Legislation Enhances the Benefits of a Section 1042 Tax-Deferred Sale
 
International Business PracticesGeoff BrownProfessor DuhnA.docx
International Business PracticesGeoff BrownProfessor DuhnA.docxInternational Business PracticesGeoff BrownProfessor DuhnA.docx
International Business PracticesGeoff BrownProfessor DuhnA.docx
 
International Taxation - BEPS Pillar 1 _ Pillar 2 Overview.pdf
International Taxation - BEPS Pillar 1 _ Pillar 2 Overview.pdfInternational Taxation - BEPS Pillar 1 _ Pillar 2 Overview.pdf
International Taxation - BEPS Pillar 1 _ Pillar 2 Overview.pdf
 
Finance 340
Finance 340Finance 340
Finance 340
 
Essay Ac553 You Decide Week 4
Essay Ac553 You Decide Week 4Essay Ac553 You Decide Week 4
Essay Ac553 You Decide Week 4
 
Chapter21 International Finance Management
Chapter21 International Finance ManagementChapter21 International Finance Management
Chapter21 International Finance Management
 
Tax audit series under section 44AB
Tax audit series under section 44ABTax audit series under section 44AB
Tax audit series under section 44AB
 
Questions On Tax Savvy, Class 1, Cash, Demand Deposits,...
Questions On Tax Savvy, Class 1, Cash, Demand Deposits,...Questions On Tax Savvy, Class 1, Cash, Demand Deposits,...
Questions On Tax Savvy, Class 1, Cash, Demand Deposits,...
 
BEPS 2.0
BEPS 2.0BEPS 2.0
BEPS 2.0
 
Federal Taxation Article Brief Essay
Federal Taxation Article Brief EssayFederal Taxation Article Brief Essay
Federal Taxation Article Brief Essay
 
Introduction to transfer pricing
Introduction to transfer pricingIntroduction to transfer pricing
Introduction to transfer pricing
 
The Equity Method Records Dividends
The Equity Method Records DividendsThe Equity Method Records Dividends
The Equity Method Records Dividends
 
An Annual Report On Balance Sheet And Income Statement
An Annual Report On Balance Sheet And Income StatementAn Annual Report On Balance Sheet And Income Statement
An Annual Report On Balance Sheet And Income Statement
 
Myer Holding Limited Annual Report 2014
Myer Holding Limited Annual Report 2014Myer Holding Limited Annual Report 2014
Myer Holding Limited Annual Report 2014
 
Vietnam Accounting Standards - VAS 28 Segment reporting
Vietnam Accounting Standards - VAS 28 Segment reportingVietnam Accounting Standards - VAS 28 Segment reporting
Vietnam Accounting Standards - VAS 28 Segment reporting
 

Umling Expense Apportioning

  • 1.
  • 2.
  • 3.
  • 4.
  • 5.
  • 6.
  • 7.
  • 8.
  • 9.
  • 10.
  • 11.
  • 12.
  • 13.
  • 14.
  • 15.
  • 16.
  • 17.
  • 18.
  • 19.
  • 20.
  • 21.
  • 22.
  • 23.
  • 24.
  • 25.
  • 26.
  • 27.
  • 28.
  • 29.
  • 30.
  • 31.
  • 32.
  • 33.
  • 34.
  • 35.
  • 36.
  • 43.
  • 44.
  • 45.
  • 46.
  • 47.
  • 48.
  • 49.
  • 50.
  • 51.
  • 52.
  • 53.
  • 54.
  • 55.
  • 56.
  • 57.
  • 58.
  • 59.
  • 60.
  • 61.
  • 62.
  • 63.
  • 64.
  • 65.
  • 66.
  • 67.
  • 68.
  • 69.
  • 70.
  • 71.
  • 72.
  • 73.
  • 74.
  • 75.
  • 76.
  • 77.
  • 78.
  • 79.
  • 80.
  • 81.
  • 82.
  • 83.
  • 84.
  • 85.
  • 86.
  • 87.
  • 88.
  • 89.
  • 90.
  • 91.
  • 92.

Hinweis der Redaktion

  1. The allocation and apportionment rules play a central role in the determination of the various foreign tax credit limitations. These limitations — or “caps” — on the amount of the credit available for foreign taxes paid on each limitation category of foreign income are determined by multiplying the pre-credit U.S. tax on the resident taxpayer's worldwide taxable income by the ratio of taxable income within the limitation category to worldwide taxable income. 63 For purposes of this ratio, foreign-source taxable income in a limitation category is foreign-source gross income in that category (determined generally under §§862(a) and 863(a)) reduced by “the expenses, losses, and other deductions properly apportioned or allocated thereto, and a ratable part of any expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income.” 64 The greater the allocation of deductions to foreign-source gross income in the limitation category, the lower the amount of foreign taxable income in the category, the lower the numerator in the limitation fraction, and, therefore, the lower the amount of foreign income taxes in that category that may be utilized as a credit against U.S. tax liability in the taxable year. 65It should be emphasized that foreign-source taxable income in a category is defined by U.S. law and is based on U.S. tax principles. Thus, it is irrelevant whether a particular deduction is allowed in the foreign jurisdiction. 66 If an item of expense is allocated or apportioned to foreign-source income for purposes of calculating the foreign tax credit limitation but is not allowed as a deduction by the foreign taxing authority, the allocation or apportionment may render some foreign income taxes noncreditable, thus in effect denying the U.S. taxpayer the benefit of the deduction. 67
  2. The IRS and Treasury Department issued interim, proposed, and final guidance on the domestic production activities deduction. 81 The regulations set forth three methods for allocating and apportioning expenses (other than cost of goods sold 82 ) for purposes of §199. 83 The principal method, “the §861 method,” utilizes the rules of Regs. §§1.861-8 through -17 (subject to modification). 84 Two simplified alternatives to the §861 method are, however, available to taxpayers that do not have gross receipts that exceed certain thresholds. 85 Under the “simplified deduction method,” available to taxpayers with average annual gross receipts of $100,000,000 or less, or total assets of $10,000,000 or less, deductions generally are apportioned ratably between DPGR and other gross receipts based on relative gross receipts. 86 The “small business simplified overall method,” available to taxpayers with average annual gross receipts of $5,000,000 or less, 87 generally permits deductions and cost of goods sold to be apportioned ratably between DPGR and other gross receipts based on relative gross receipts. 8881 Notice 2005-14, 2005-7 I.R.B. 498; REG-105847-05, 70 Fed. Reg. 67220 (11/4/05); T.D. 9263, 71 Fed. Reg. 31268 (6/1/06). T.D. 9263obsoleted Notice 2005-14 and adopted regulations effective for taxable years beginning on or after June 1, 2006. For taxable years beginning before June 1, 2006, a taxpayer may apply the final regulations provided the taxpayer applies all relevant provisions. A taxpayer choosing not to rely on the final regulations for pre-effective-date taxable years may rely upon a stated rule in either Notice 2005-14 or the proposed regulations. Regs. §1.199-8(i)(1).82 With respect to cost of goods sold, Regs. §1.199-4(b)(2) provides that a taxpayer should utilize a “reasonable method that is satisfactory to the Secretary based on all of the facts and circumstances” to allocate the cost of goods sold between DPGR and other gross receipts. An exception to these cost of goods sold rules is the small business simplified overall method of cost allocation (described below), which must be used for all costs.83Regs. §1.199-4(c).84Regs. §1.199-4(d).85Regs. §1.199-4(e), (f).86Regs. §1.199-4(e).87 The small business simplified overall method is also available to taxpayers with average annual gross receipts of $10,000,000 or less that are not prohibited from using the cash method under §448, including a partnership, an S corporation, a C corporation, or an individual and to taxpayers engaged in the trade or business of farming that are not required to use the accrual method of accounting under §447. Regs. §1.199-4(f)(2).88Regs. §1.199-4(f).
  3. Consistent use in the application of expense allocation between operative code sections is required. However, the taxpayer may vary the application of allocation and apportionment from year to year.The IRS and Treasury Department issued interim, proposed, and final guidance on the domestic production activities deduction. 81 The regulations set forth three methods for allocating and apportioning expenses (other than cost of goods sold 82 ) for purposes of §199. 83 The principal method, “the §861 method,” utilizes the rules of Regs. §§1.861-8 through -17 (subject to modification). 84 Two simplified alternatives to the §861 method are, however, available to taxpayers that do not have gross receipts that exceed certain thresholds. 85 Under the “simplified deduction method,” available to taxpayers with average annual gross receipts of $100,000,000 or less, or total assets of $10,000,000 or less, deductions generally are apportioned ratably between DPGR and other gross receipts based on relative gross receipts. 86 The “small business simplified overall method,” available to taxpayers with average annual gross receipts of $5,000,000 or less, 87 generally permits deductions and cost of goods sold to be apportioned ratably between DPGR and other gross receipts based on relative gross receipts. 8881 Notice 2005-14, 2005-7 I.R.B. 498; REG-105847-05, 70 Fed. Reg. 67220 (11/4/05); T.D. 9263, 71 Fed. Reg. 31268 (6/1/06). T.D. 9263obsoleted Notice 2005-14 and adopted regulations effective for taxable years beginning on or after June 1, 2006. For taxable years beginning before June 1, 2006, a taxpayer may apply the final regulations provided the taxpayer applies all relevant provisions. A taxpayer choosing not to rely on the final regulations for pre-effective-date taxable years may rely upon a stated rule in either Notice 2005-14 or the proposed regulations. Regs. §1.199-8(i)(1).82 With respect to cost of goods sold, Regs. §1.199-4(b)(2) provides that a taxpayer should utilize a “reasonable method that is satisfactory to the Secretary based on all of the facts and circumstances” to allocate the cost of goods sold between DPGR and other gross receipts. An exception to these cost of goods sold rules is the small business simplified overall method of cost allocation (described below), which must be used for all costs.83Regs. §1.199-4(c).84Regs. §1.199-4(d).85Regs. §1.199-4(e), (f).86Regs. §1.199-4(e).87 The small business simplified overall method is also available to taxpayers with average annual gross receipts of $10,000,000 or less that are not prohibited from using the cash method under §448, including a partnership, an S corporation, a C corporation, or an individual and to taxpayers engaged in the trade or business of farming that are not required to use the accrual method of accounting under §447. Regs. §1.199-4(f)(2).88Regs. §1.199-4(f).
  4. If a deduction is not definitely related to class of income then it is apportioned ratably to a statutory grouping.
  5. The intent of the allocation and apportionment regulations is to provide guidelines for allocating and apportioning all deductions. The regulations highlight specific expenses and provide special rules for allocating and apportioning deductions for them. For all other deductions, the regulations provide general guidelines for their allocation and apportionment.The regulations do not allocate capital expenses, because such an expense is not deductible but is included in the basis of another asset (which itself may be depreciable or amortizable). Capital expenses include expenses subject to the uniform capitalization (UNICAP) rules and capitalizable interest expense.
  6. Generally allocated to classes of gross income in proportion to assets that generate or can reasonably be expected to generate such income
  7.   1.861-9T(j) Modified Gross Income Method.Subject to rules set forth in paragraph (f)(3) of this section, the interest expense of a controlled foreign corporation may be allocated according to the following rules.  1.861-9T(j)(1) Single-Tier Controlled Foreign Corporation.In the case of a controlled foreign corporation that does not hold stock in any lower-tier controlled foreign corporation, the interest expense of the controlled foreign corporation shall be apportioned based on its gross income.  1.861-9T(j)(2) Multiple Vertically Owned Controlled Foreign Corporations.In the case of a controlled foreign corporation that holds stock in any lower-tier controlled foreign corporation, the interest expense of that controlled foreign corporation and such upper-tier controlled foreign corporation shall be apportioned based on the following methodology:1.861-9T(j)(2)(i) Step 1.Commencing with the lowest-tier controlled foreign corporation in the chain, allocate and apportion its interest expense based on its gross income as provided in paragraph (j)(1) of this section, yielding gross income in each grouping net of interest expense.1.861-9T(j)(2)(ii) Step 2.Moving to the next higher-tier controlled foreign corporation, combine the gross income of such corporation within each grouping with its pro rata share of the gross income net of interest expense of all lower-tier controlled foreign corporations held by such higher-tier corporation within the same grouping adjusted as follows:1.861-9T(j)(2)(ii)(A) Exclude from the gross income of the upper-tier corporation any dividends or other payments received from the lower-tier corporation other than interest subject to look-through under section 904(d)(3); and1.861-9T(j)(2)(ii)(B) Exclude from the gross income net of interest expense of any lower-tier corporation any subpart F income (net of interest expense apportioned to such income).Then apportion the interest expense of the higher-tier controlled foreign corporation based on the adjusted combined gross income amounts. Repeat this step 2 for each next higher-tier controlled foreign corporation in the chain. For purposes of this paragraph (j)(2)(ii), pro rata share shall be determined under principles similar to section 951(a)(2).
  8. Generally allocated to classes of gross income in proportion to assets that generate or can reasonably be expected to generate such income
  9. Consistent with its published position, the IRS, in a 2000 docketed Tax Court case, Ralston Purina v. Comr., challenged the taxpayer's ability to make a retroactive fair market value election. 428 In a significant change of position, however, on June 19, 2002, the IRS conceded that “the doctrine of election does not preclude [Ralston Purina] from amending its [past years’] income tax returns to elect retroactively to value assets according to their fair market values for purposes of apportioning interest expense under Temp. Treas. Regs. §§1.861-8T(c)(2) and 1.861-9T(g)(1)(ii).” Concurrent with its concession in Ralston Purina, the IRS issued Chief Counsel Notice 2002-27, 429 which states that:428 Ralston Purina v. Comr., T.C. Dkt. No. 7357-00.429 2002-1 C.B. 814.After careful reconsideration, the Service will no longer argue that the doctrine of election applies to preclude a taxpayer from amending past years’ returns to elect retroactively to value assets according to their fair market values for purposes of apportioning interest expense under Temp. Treas. Regs. §1.861-9T(g).
  10. Step 4Taxpayer’s pro rata share of related persons’ Step 2 (“tangible”) assets► Plus: Intangible asset value apportioned to related persons in Step 3► Less: Taxpayer’s pro rata share of related persons’ liabilitiesTechnical issues under FMV method► Elimination of inter-company receivables from computations – conflict with Temp. Reg. §1.861-12T(d)?► Use of GAAP vs. tax basis EBIT to allocate intangible value► Treatment of losses in allocating intangible value
  11. See IRS CCA 2002-027 and Rev. Proc. 2003-37