How do the earnings stripping and interest limitation rules under IRC 163(j) affect foreign-owned U.S. entities?
Our U.S. company is funded largely through intercompany loans from our foreign parent. We pay about $15 million per year in interest to the parent. I've heard about 'earnings stripping' rules and Section 163(j) limitations on interest deductions. How do these rules work, and is there a risk that our interest deductions could be disallowed? We have about $40 million in adjusted taxable income.
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