SECTION 4. DETERMINATION OF

U.S.-CONNECTED LIABILITIES UNDER THE FIXED RATIO FOR FOREIGN BANKS

As noted, Step 2 of the calculation is used to determine the amount of U.S.-connected liabilities. Section 1.882–5(c)(1) provides that “[t]he amount of U.S.-connected liabilities for the taxable year equals the total value of U.S. assets for the taxable year (as determined under paragraph (b)(3) of this section) multiplied by the actual ratio for the taxable year (as determined under paragraph (c)(2) of this section) or, if the taxpayer has made an election in accordance with paragraph (c)(4) of this section, by the fixed ratio.” In 1996, the final regulations established the fixed ratio for foreign banks at 93 percent.

The Treasury Department and IRS have considered data from more recent years to determine whether the 93 percent fixed ratio continues to be appropriate. Based on that examination, it appears that a fixed ratio of between 94 and 96 percent may be more appropriate. The Treasury Department and IRS invite the submission of data and other information relevant to the consideration of a revised fixed ratio, including information about the nature of the assets and risks related to the U.S. trade or business as compared to the business conducted outside the United States.

It is expected that taxpayers will be permitted to make new elections with respect to section 1.882–5 to take into account these changes.