The Article discusses why the current Code balance sheet safe harbor in section 163(j), which is based on the taxpayer's tax basis in its assets and not their fair market value, is conceptually incorrect. Section 163(j) limits the deduction for interest expense in certain cases with a major impact on many U.S. subsidiaries of foreign corporations. Section 163(j) does not however limit the interest expense deduction where the issuer's ratio of debt-to-equity does not exceed 1.5 to 1, which is why it is important that the statute be amended to measure assets at their fair market value. The Article also discusses, outside of the section 163(j) context, why fair market value, and not book or tax basis, is the proper measure for assets in testing as to whether the taxpayer should be thinly capitalized. Thin capitalization is one factor the courts look to in determining whether an instrument purporting to be debt will be respected as such.