On July 15, the IRS issued final regulations ( T.D. 9676) under Section 861 that provide guidance concerning the allocation and apportionment of interest expense by corporations owning a 10% or greater interest in a partnership, as well as the allocation and apportionment of interest expense using the fair market value method.

The final regulations provide that 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. Additionally, the final regulations provide that related party debt is an asset that must be taken into account whether it's held by the taxpayer or a related person where a taxpayer uses the fair market value method to value assets to allocate and apportion interest expense.

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