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Multinational companies must allocate interest expense to U.S. and foreign source income in accordance with Treasury Regulation §1.861-9T(g), which calls for the allocation of the interest expense based on the source of income generated by the specific asset. While the allocation is generally based on the tax basis of the assets, an election can be made under Sec. 1.861-9T(g) to base the allocation on fair market value of the underlying assets. The fair market value election can result in a more favorable interest expense allocation if, for example, there are U.S. assets with low tax bases but high fair market values. Our valuation analyses can provide the basis for the FMV interest expense apportionment under current law as well as under the election provided by the JOBS Act of 2004 for taxable years after 2008.
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