Allocation-of-Income Rules

Allocation-of-income rules

US tax provisions that define how income and deductions are to be allocated between domestic source and foreign source income.

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Allocation-of-Income Rules

Given two or more organizations controlled by the same persons or parties, rules allowing the IRS to treat some income, deductions, or credits claimed by one as claimed by another to reflect the true tax liability for the organizations. For example, if one company gives a loan to another and either charges no interest rate or does not charge an "arm's length" interest rate, the IRS may, in some circumstances, treat the companies as one entity for tax purposes. Allocation-of-income rules exist to prevent tax evasion by hiding some income in shell companies.