Trinova Corporation and Subsidiaries - Page 11

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          Thus, the regulations effectively combine the allocation and                
          apportionment steps for interest expense.                                   
               Finally, there are special rules for losses incurred in the            
          sale, exchange, or disposition of property.  Normally, the                  
          deduction for such a loss is allocated "to the class of gross               
          income to which such asset or property ordinarily gives rise in             

          4(...continued)                                                             
               As a result of the above computations, X would apportion its           
               interest deduction as follows:                                         
               To gross income from sources within the United States                  
               (residual grouping):                                                   
                         $3,200,000                                                   
               $150,000 x           .........................120,000                  
                         $4,000,000                                                   
               To gross income from sources outside the United States                 
               (statutory grouping):                                                  
                         $800,000                                                     
               $150,000 x           ........................  30,000                  
                         $4,000,000                                                   
               Total.........................................150,000                  
                           *    *    *    *    *    *    *                            
                   Example (2)--Interest--(i) * * *  [X has $200,000                  
               interest expense, $3,200,000 of assets related to its                  
               domestic source income; $800,000 of assets related to its              
               foreign source income from Y; and $1,000,000 of assets                 
               related to its foreign source income from Z.]                          
                           *    *    *    *    *    *    *                            
                   Tentative apportionment on the basis of assets                     
               Interest expense apportioned to sources outside the United             
               States (statutory grouping):                                           
                         ($800,000 + $1,000,000)                                      
               $200,000 x                            ........$72,000                  
               ($800,000 + $1,000,000 + $3,200,000)                                   
               Interest expense apportioned to sources within the United              
               States (residual grouping):                                            
                              $3,200,000                                              
               $200,000 x                            ........128,000                  
                         ($800,000 + $1,000,000 + $3,200,000)                         
               Total apportioned interest expense............200,000                  





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