Flan, a U.S. corporation, reports $250,000 interest expense for the tax year. None of the interest relates to nonrecourse debt or loans from affiliated corporations. Flan's U.S. and foreign assets are as follows. How should Flan assign its interest expense between U.S. and foreign sources to maximize its FTC for the current year?

Question

Flan, a U.S. corporation, reports $250,000 interest expense for the tax year. None of the interest relates to nonrecourse debt or loans from affiliated corporations. Flan's U.S. and foreign assets are as follows.  How should Flan assign its interest expense between U.S. and foreign sources to maximize its FTC for the current year?

Quizplus · Accepted Answer

Flan should assign its interest expense between U.S. and foreign sources using tax book values to maximize its FTC for the current year. Under the tax book value method, interest expense is assigned based on the relative amounts of assets that generate the interest income. Since Flan's assets are not affiliated with any foreign entities, using tax book values would be the most appropriate method for assigning its interest expense to maximize its FTC for the current year.

Flan, a US