Downstream partnership loan interest income (DPL interest income)
(E) Downstream partnership loan interest income (DPL interest income). The term downstream partnership loan interest income, or DPL interest income, means an item of gross interest income received or accrued with respect to a downstream partnership loan. (F) Downstream partnership loan lender (DPL lender). The term downstream partnership loan lender, or DPL lender, means the person that holds the receivable with respect to a downstream partnership loan. If a partnership holds the receivable, then any partner in the partnership (other than a partner described in paragraph (e)(4)(i) of this section) is also considered a DPL lender. (vii) Examples. The following examples illustrate the application of the rules in this paragraph (e)(8). (A) Example 1(1) Facts. US1, a domestic corporation, directly owns 60% of PRS, a foreign partnership that is not engaged in a U.S. trade or business. The remaining 40% of PRS is directly owned by US2, a domestic corporation that is unrelated to US1. US1, US2, and PRS all use the calendar year as their taxable year. In Year 1, US1 loans $1,000x to PRS. For Year 1, US1 has $100x of interest income with respect to the loan and PRS has $100x of interest expense with respect to the loan. US1's distributive share of the interest expense is $60x. Under paragraph (e)(2) of this section, $45x of US1's distributive share of the interest expense is apportioned to U.S. source income and $15x is apportioned to foreign source foreign branch category income. Under paragraph (h)(4)(i) of this section, the total value of the loan between US1 and PRS is $1,000x.