Prop. Treas. Reg. § 1.56A-9: AFSI adjustments for owners of disregarded entities or branches.

Par. 9. Sections 1.56A-0 through 1.56A-27 are added to read as follows:

(a) Overview. This section provides rules under section 56A(c)(6) of the Code for determining the AFSI of a CAMT entity that owns a disregarded entity or branch.

(b) Rules for determining the FSI and AFSI of a CAMT entity that owns a disregarded entity or branch —(1) In general. A disregarded entity or branch and the CAMT entity that owns the disregarded entity or branch (including through other disregarded entities or branches) are treated as a single CAMT entity for purposes of the section 56A regulations. Thus, except as otherwise provided in the section 56A regulations (for example, in § 1.56A-21), for purposes of the section 56A regulations, a CAMT entity that owns a disregarded entity or branch is treated as—

(i) Directly owning the assets of the disregarded entity or branch;

(ii) Being directly liable for the liabilities of the disregarded entity or branch; and

(iii) Directly earning or incurring any income, expense, gain, loss, or other similar item of the disregarded entity or branch.

(2) Transactions disregarded. For purposes of determining the FSI and AFSI of a CAMT entity that owns a disregarded entity or branch (CAMT entity owner)—

(i) Transactions between the disregarded entity or branch and the CAMT entity owner (or between disregarded entities or branches owned by the same CAMT entity owner) are disregarded; and

(ii) Any balance sheet account or income statement account that reflects the CAMT entity owner's investment in the disregarded entity or branch (or a disregarded entity's or branch's investment in another disregarded entity or branch that is ultimately owned by the same CAMT entity owner) is disregarded.

(3) Certain disregarded entities or branches subject to the rules in § 1.56A-2(h). If a disregarded entity or branch is required to determine its own AFS under § 1.56A-2(h), then for purposes of the section 56A regulations, the CAMT entity that owns the disregarded entity or branch treats the separate AFS of the disregarded entity or branch (as determined under § 1.56A-2(h)) as part of the CAMT entity's own AFS, and applies the rules of this section by reference to that separate AFS.