[Code of Federal Regulations]
[Title 26, Volume 9]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.861-9]

[Page 167]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.861-9  Allocation and apportionment of interest expense.

    (a) through (h)(4) [Reserved]. For further guidance, see Sec. 1.861-
9T(a) through (h)(4).
    (h)(5) Characterizing stock in related persons--(i) General rule. 
Stock in a related person held by the taxpayer or by another related 
person shall be characterized on the basis of the fair market value of 
the taxpayer's pro rata share of assets held by the related person 
attributed to each statutory grouping and the residual grouping under 
the stock characterization rules of Sec. 1.861-12T(c)(3)(ii), except 
that the portion of the value of intangible assets of the taxpayer and 
related persons that is apportioned to the related person under 
Sec. 1.861-9T(h)(2) shall be characterized on the basis of the net 
income before interest expense of the related person within each 
statutory grouping or residual grouping (excluding income that is 
passive under Sec. 1.904-4(b)).
    (ii) Special rule for section 936 corporations regarding alternative 
minimum tax. For purposes of characterizing stock in a related section 
936 corporation in determining foreign source alternative minimum 
taxable income within each separate category and the alternative minimum 
tax foreign tax credit pursuant to section 59(a), the rules of 
Sec. 1.861-9T(g)(3) shall apply and Sec. 1.861-9(h)(5)(i) shall not 
apply. Thus, for taxable years beginning after December 31, 1989, and 
before January 1, 1994, stock in a related section 936 corporation is 
characterized for alternative minimum tax purposes as a foreign source 
passive asset because the stock produces foreign source passive dividend 
income under sections 861(a)(2)(A), 862(a)(2), and 904(d)(2)(A) and the 
regulations under those sections. For taxable years beginning after 
December 31, 1993, stock in a related section 936 corporation would be 
characterized for alternative minimum tax purposes as an asset subject 
to the separate limitation for section 936 corporation dividends because 
the stock produces foreign source dividend income that, for alternative 
minimum tax purposes, is subject to a separate foreign tax credit 
limitation under section 56(g)(4)(C)(iii)(IV). However, stock in a 
section 936 corporation is characterized as a U.S. source asset to the 
extent required by section 904(g). For the definition of the term 
section 936 corporation, see Sec. 1.861-11(d)(2)(ii).
    (iii) Effective date. This paragraph (h)(5) applies to taxable years 
beginning after December 31, 1989.

[T.D. 8916, 66 FR 272, Jan. 3, 2001]