Direct allocations
(ii) Direct allocations(A) In general. A foreign corporation that has a U.S. asset and indebtedness that meet the requirements of 1.86110T (b) or (c), as limited by 1.86110T(d)(1), shall directly allocate interest expense from such indebtedness to income from such asset in the manner and to the extent provided in 1.86110T. For purposes of paragraph (b)(1) or (c)(2) of this section, a foreign corporation that allocates its interest expense under the direct allocation rule of this paragraph (a)(1)(ii)(A) shall reduce the basis of the asset that meets the requirements of 1.86110T (b) or (c) by the principal amount of the indebtedness that meets the requirements of 1.861- 10T (b) or (c). The foreign corporation shall also disregard any indebtedness that meets the requirements of 1.86110T (b) or (c) in determining the amount of the foreign corporation's liabilities under paragraphs (c)(2) and (d)(2) of this section and shall not take into account any interest expense paid or accrued with respect to such a liability for purposes of paragraph (d) or (e) of this section.