Section 861: adoption of alternative tax book value method for depreciation expense: September 17, 2004.

On September 17, 2004, Tax Executives Institute submitted the following comments to the U.S. Department of the Treasury and the Internal Revenue Service on the adoption of an alternative tax book value (TBV) method for depreciation expense for purposes of the allocation and apportionment of expenses under section 861 of the Internal Revenue Code. The comments were prepared under the aegis of TEI's International Tax Committee whose chair is John J. Herson of Neenah Paper Inc.

On March 25, 2004, the U.S. Department of the Treasury and Internal Revenue Service issued temporary and proposed regulations under section 861 of the Internal Revenue Code, relating to the use of an alternative tax book value method for allocating and apportioning interest expense. The temporary and proposed regulations were published in the March 26, 2004, issue of the FEDERAL REGISTER, 69 FED. REG. 15673, 15753, and a hearing was held on July 19, 2004.

TEI commends the IRS and Treasury for seeking to simplify the section 861 rules by adopting an alternative tax book value method for depreciation expense. Indeed, we believe that there are other areas (such as goodwill) where distortions may occur that would benefit from similar rules.

Background

Tax Executives Institute is the preeminent association of business tax executives in North America. Our more than 5,400 members represent 2,800 of the leading corporations in the United States, Canada, and Europe. TEI represents a cross-section of the business community, and is dedicated to developing and effectively implementing sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works--one that is administrable and with which taxpayers can comply in a cost-efficient manner.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the proposed regulations under section 861, relating to the allocation and apportionment of interest expense.

The Alternative Tax Book Value Method

1. Depreciation. Section...