IRS written determination 202625013

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 202625013
Release Date: 6/18/2026
Index Number: 882.07-00

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In Re: ----------------------------------------------------
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
------------------------, ID No. -----------------
Telephone Number:
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Refer Reply To:
CC:INTL:B05
PLR-115234-25
Date:
March 24, 2026
LEGEND

Taxpayer = --------------------------------
Country A = ------------
Country B = ---------------------------
Foreign Regulator = --------------------------------------------------------
State A Regulator = ----------------------------------------------------------
State B Regulator = ----------------------------------------
Trading Recordkeeping System = ------------------------------------

Dear --------------:

This is in response to Taxpayer’s request for rulings, received August 21, 2025, and
subsequent correspondence, under section 882 of the Internal Revenue Code of 1986
(“the Code”) and section 1.882-5(d)(2)(iii) of the Income Tax Regulations
(“Regulations”).
FACTS
Taxpayer represents the following:

Taxpayer is incorporated under the laws of Country A. Taxpayer is an authorized
deposit-taking institution in Country A and is subject to prudential supervision and
examination by Foreign Regulator, the Country A banking regulator. Taxpayer maintains
offices in various countries, such as Country B, and has representative offices in the
United States. Taxpayer qualifies as a bank within the meaning of section 585(a)(2)(B)
(determined without regard to the second sentence thereof) based on its worldwide
banking business.

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Taxpayer’s global operations include its retail banking and financial services businesses
that are conducted primarily in Country A. Taxpayer also operates global lending and
trading businesses and conducts several lines of these businesses directly through a
U.S. permanent establishment.

The U.S. permanent establishment is operated through representative offices in the
United States. The representative offices are not licensed to accept deposits in the
United States by any state or federal regulator, but they are subject to supervision and
examination by U.S. banking regulators, such as State A Regulator, State B Regulator,
and the Federal Reserve.

The U.S. permanent establishment gives rise to effectively connected income and U.S.
assets for U.S. federal income tax purposes. The Taxpayer has elected to use the
separate currency pool methodology in section 1.882-5(e) and the fixed ratio for banks
in section 1.882-5(c)(4) to calculate its interest deduction under section 882.

The U.S. permanent establishment’s assets are predominantly U.S. dollar denominated.
Taxpayer’s main U.S. dollar funding sources are wholesale funding markets in which it
issues debt (the “Wholesale Liabilities”). These liabilities support both the U.S.
permanent establishment and aspects of Taxpayer’s lending and trading businesses
globally. The Wholesale Liabilities are entirely raised from unrelated parties and are not
attributable to interbranch activities or transactions.

Wholesale Liabilities are not booked to the U.S. permanent establishment’s portion of
the general ledger. Instead, they are recorded in funding books or subledgers in the
Country A ledger maintained by Taxpayer’s treasury division. The provision of this
funding to the U.S. permanent establishment is reflected on Taxpayer’s books, including
the balance sheet of the U.S. permanent establishment, as an interbranch loan.
Taxpayer neither traces nor identifies particular U.S. dollar liabilities incurred in Country
A directly to the U.S. assets attributable to its U.S. permanent establishment.

Upon issuance, the Wholesale Liabilities are first recorded in one of Taxpayer’s
electronic data systems called the Trading Recordkeeping System on or before the
close of the day on which the liabilities are incurred. The Trading Recordkeeping
System is a source system used to record key data of a number of different financial
instruments, such as derivatives entered into by Taxpayer and liabilities issued by
Taxpayer, including the Wholesale Liabilities. This data is then fed into the Taxpayer’s
general ledger and, ultimately, into its financial statements.
REQUESTED RULINGS
Taxpayer requests the following rulings:

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1. Taxpayer qualifies as a bank for purposes of determining whether liabilities are
properly reflected on the books of a U.S. trade or business under section 1.882-
5(d)(2)(iii).
2. Taxpayer’s Trading Recordkeeping System constitutes part of “a set of books” for
purposes of section 1.882-5(d)(2)(iii)(A)(1).
3. A portion of the Wholesale Liabilities qualifies as U.S. booked liabilities for
purposes of section 1.882-5(d)(2).
LAW AND ANALYSIS
Section 882(c) provides that, in the case of a foreign corporation engaged in a trade or
business within the United States, deductions are allowed only to the extent that they
are connected with income which is effectively connected with the conduct of a trade or
business within the United States (“ECI”). Section 1.882-5 provides rules for
determining the amount of interest expense of a foreign corporation that is allocable to
ECI under section 882(c).

For this purpose, taxpayers using the adjusted U.S. booked liabilities method for
computing interest expense allocable to ECI must (in addition to measuring U.S.
connected liabilities under section 1.882-5(c)) determine U.S. booked liabilities under
section 1.882-5(d).
1
U.S. booked liabilities are the liabilities properly reflected on the
books of a U.S. trade or business. Section 1.882-5(d)(2)(i). According to section 1.882-
5(d)(2)(iii)(A), liabilities are properly reflected on the books of a U.S. trade or business of
a foreign corporation that is a bank as described in section 585(a)(2)(B) (without regard
to the second sentence thereof) if:

(1) the bank enters the liability on a set of books before the close of the day on
which the liability is incurred, and the liability relates to an activity that produces
ECI; and
(2) there is a direct connection or relationship between the liability and that
activity. Whether there is a direct connection between the liability and an activity
that produces ECI depends on the facts and circumstances of each case.

Definition of a Bank under Section 1.882-5(d)(2)(iii)

Section 1.882-5(d)(2)(iii) cross references the definition of a bank as described in
section 585(a)(2)(B) “without regard to the second sentence thereof.”

1
Example 5 of section 1.882-5(d)(6) makes clear that a taxpayer’s U.S. booked liabilities determined
under section 1.882-5(d)(2)(iii) can be used to ascertain branch interest under section 1.884-4(b)(1)(i)(A)
regardless of whether the taxpayer uses the adjusted U.S. booked liabilities method or separate currency
pools method to allocate its interest expense under section 1.882-5(e).

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Section 585(a)(2)(B) provides:

The term “bank” also includes any corporation [that would be a “bank” as defined
in section 581] except for the fact that it is a foreign corporation. In the case of
any such foreign corporation, this section shall apply only with respect to loans
outstanding the interest on which is effectively connected with the conduct of a
banking business within the United States.

Section 581 defines a “bank” in relevant part to be:

[A] bank or trust company incorporated and doing business under the laws of the
United States (including laws relating to the District of Columbia) or of any State,
a substantial part of the business of which consists of receiving deposits and
making loans and discounts, or of exercising fiduciary powers similar to those
permitted to national banks under authority of the Comptroller of the Currency,
and which is subject by law to supervision and examination by State or Federal
authority having supervision over banking institutions.

Therefore, a foreign bank may be treated as a bank for purposes of section 1.882-
5(d)(2)(iii) even if its banking activities are not effectively connected with a trade or
business within the United States.
2

Definition of a “Set of Books”

Section 1.882-5(d)(2)(iii) requires that, in order for a liability to be treated as properly
reflected on the books of a U.S. trade or business of a foreign bank, the liability must be
recorded on a set of books before the close of the day on which the liability is incurred.
Section 1.882-5(d)(2)(iii)(A)(1) does not explicitly provide a definition of “a set of books.”
However, section 1.882-5(d)(6), Example 5, illustrates that multiple books or records
can be taken together to constitute a set of books within the meaning of section 1.882-
5(d)(2)(iii)(A)(1). In the example, a foreign bank maintains a banking office in the United
States that records transactions on three sets of books with respect to a State A branch,
an International Banking Facility for its bank regulatory approved international
transactions, and a shell branch licensed operation in another foreign country (“Country
C”). The example explains that the separate State A branch, international banking
facility, and Country C branch books, taken together, constitute a set of books within the
meaning of section 1.882-5(d)(2)(iii)(A)(1). Accordingly, a recordkeeping system that is

2
This interpretation aligns with the definition of a bank in section 1.882-5(c)(4) (which provides an elective
fixed ratio method of determining U.S. connected liabilities). Earlier private letter rulings had taken a
narrower view of this definition. See, e.g., PLR 200125030. However, the regulations were subsequently
amended to provide that the definition of a bank can be satisfied without regard to “whether any such
activities are effectively connected with a trade or business within the United States.” T.D. 9281, 71 Fed.
Reg. 47443, 47450 (2006); T.D. 9465, 74 Fed. Reg. 49315, 49319 (2009). In the wake of these
developments, the definition of a bank in section 1.882-5(d)(2)(iii) should likewise be interpreted to
include a foreign bank even if it is not engaged in a licensed banking business within the United States.

PLR-115234-25

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used to prepare ledgers and financial statements can be a component of a set of books
within the meaning of section 1.882-5(d)(2)(iii)(A)(1) even if it would not be standing
alone.
CLOSING AGREEMENT
The Service intends to enter a closing agreement with Taxpayer to resolve whether
(and, if so, to identify which of) its Wholesale Liabilities are U.S. booked liabilities. The
Service declines to rule on this request in the interest of sound tax administration.
RULINGS
1. Taxpayer qualifies as a bank for purposes of determining whether liabilities are
properly reflected on the books of a U.S. trade or business under section 1.882-
5(d)(2)(iii).
2. Taxpayer’s Trading Recordkeeping System is part of a set of books within the
meaning of section 1.882-5(d)(2)(iii)(A)(1).
CAVEATS
This ruling's application is limited to the facts, representations, Code sections, and
regulations cited herein. Except as specifically provided otherwise, no opinion is
expressed on the federal income tax consequences of any transaction or item
discussed or referenced in this letter.

The rulings contained in this letter are based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an appropriate party. While this office has not verified any of the material submitted in
support of the request for rulings, it is subject to verification on examination.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that
it may not be used or cited as precedent.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

In accordance with the Powers of Attorney on file with this office, a copy of this letter is
being sent to Taxpayer's authorized representatives.

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Sincerely,

Raphael J. Cohen
Senior Counsel, Branch 5
Office of Associate Chief Counsel
(International)

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