Guidance on Section 861 FMV election

March 2011
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Guidance on Section 861 FMV election

At a glance

In administrative guidance released in 2010, the IRS asserted that it can override a taxpayer's unsubstantiated election to use the fair market value (FMV) method for purposes of asset apportionment under Section 861.

PwC ITS U.S. Outbound Tax Update

In administrative guidance the release of which was delayed from 2003 to 2010, the IRS asserted that it can override a taxpayer's unsubstantiated election to use the fair market value (FMV) method for purposes of asset apportionment under Section 861.

FAA 20100502F (issued on December 2, 2003, released on February 5, 2010) concluded that the taxpayer failed to establish the values of a substantial portion of its assets and could not support its election to use the FMV method of interest expense apportionment. Accordingly, the IRS asserted its authority to force the taxpayer to use the tax book value (TBV) method.