USAco, a domestic corporation, is the wholly-owned U.S. subsidiary of FORco, a foreign corporation. The U.S.-Country F tax treaty exempts interest payments from withholding taxes. USAco’s financial statements appear as follows:
BALANCE SHEET
Assets Liabilities & Owners’ Equity Cash $100
Receivables $500 Notes Payable $400
Owner’s Equity $200
INCOME STATEMENT
Gross Income $500
Administrative Expenses $350
Interest Expense $100 The interest expense of $100 arises from a notes payable from USAco to FORco.
What is the maximum amount of interest USAco may deduct on its U.S. return?