FROM THE OFFICE OF PUBLIC AFFAIRS
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May 6, 2005
JS-2430
IRS and Treasury Issue Revenue Procedure on Change in Methods for
Apportioning Interest Expenses
WASHINGTON, DC – Today the Treasury Department and the IRS issued Revenue Procedure 2005-28, making it easier for certain taxpayers to adopt a simpler method of allocating and apportioning interest expenses in determining their net U.S. and foreign source income for foreign tax credit purposes.
Taxpayers generally may elect to measure assets for purposes of apportioning interest expense between U.S. and foreign sources under the tax book value method or the fair market value method. Temporary and proposed regulations issued in March 2004 provide taxpayers with an elective alternative approach, the alternative tax book value method, which permits a taxpayer to determine the basis of its U.S. and foreign assets for interest allocation purposes without incurring the disparities that may arise under the regular tax book value method.
A taxpayer who has been using the fair market value method must obtain IRS consent to change to a different method. Revenue Procedure 2005-28 provides temporary rules, as suggested in the preamble to the temporary regulations, granting taxpayers automatic consent to change from the fair market value method to the alternative tax book value method. The revenue procedure authorizes taxpayers to switch from the fair market value method to the alternative tax book value method during the first two years in which the alternative tax book value election can be made.
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