Final regulations - Allocation, apportionment of interest expense 

July 15:  The Treasury Department and IRS today released for publication in the Federal Register final regulations (T.D. 9676) concerning the allocation and apportionment of interest expense concerning:
  • Corporate partners holding a 10% or greater interest in the partnership
  • The fair market value method for allocating and apportioning interest expense
  • Rules for affiliation of certain foreign corporations

Today’s regulations [PDF 204 KB] finalize “with no substantive change” regulations that were proposed in 2012 (issued in connection with temporary regulations), as well as the portions of Reg. section 1.861-9T(e)(2) and (3) of temporary regulations (1988) that were not amended by the 2012 temporary regulations.

The final regulations will be published in the Federal Register on July 16, 2014.


The 2012 temporary regulations made targeted changes to three paragraphs of the 1988 temporary regulations:

  • A corporate partner with a 10% or greater interest in a partnership must allocate its direct interest expense to all of its assets, including its proportionate share of partnership assets.
  • Rules for valuing related person debt clarify that related-party debt is taken into account as an asset of the lender and a liability of the borrower for purposes of applying the fair market value method for apportioning interest expense.
  • A foreign corporation is treated as a member of an affiliated group for interest allocation and apportionment purposes if: (1) more than 50% of the gross income of this foreign corporation is effectively connected income; and (2) the affiliated group owns at least 80% of the vote or value of the foreign corporation. If these conditions are satisfied, all of the foreign corporation’s assets and interest expense are taken into account for interest expense allocation purposes.

Read an initial report on the 2012 temporary and proposed regulations: TaxNewsFlash-United States [PDF 40 KB].

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