Overview, Part 4: Associating Deductions with Income
Channel: International Tax
Date: 2017-11-14

Learn the very basics of allocating and apportioning deductions for the foreign tax credit, Section 199, and other purposes.  Included:
00:00  Introduction
00:32  Foreign source taxable income
01:24  Directly related deductions
02:37  Interest expense
03:29  Basis in subsidiaries
04:56  R&D Expense
06:43  Apportionment may cause loss
06:56  Stewardship expenses
07:39  Quiz and conslusion

Quiz:
1.  Which of the following computations does not require allocation and apportionment of deductions? 
  a. Office in the home
  b. Foreign tax credit
  c. Domestic production activities deduction
  d. Jobs credit
2.  Which of the following factors is most important in allocating and apportioning sales salaries? 
  a. How many salesmen there are
  b. What goods the salesmen sell
  c. Payroll burden rate
  d. Compensation formula
3.  On what basis is interest expense apportioned? 
  a. Cost basis of assets
  b. Adjusted tax basis of assets
  c. Sales
  d. Gross margin
4.  Which method is not allowed for apportioning R&D expense
  a. Salaries
  b. Sales
  c. Gross income

Resources:  
26 CFR 1.861-8 through -17.  See   https://www.ecfr.gov/cgi-bin/text-idx?mc=true&tpl=/ecfrbrowse/Title26/26cfr1k_main_02.tpl  for list.

There are only two books with good coverage of this topic:  mine (Income Tax in the USA, available on amazon.com) and an out of print book published by the AICPA, U.S. Tax Aspects of Doing Business Abroad.


Quiz answers:
1.d; 2.b; 3.b; 4.d