Trinova Corporation and Subsidiaries - Page 10

                                       - 10 -                                         

          generate, have generated, or could reasonably have been expected            
          to generate."  Sec. 1.861-8(e)(2)(ii), Income Tax Regs.3                    
          Interest deductions are apportioned on the basis of values of               
          assets which produce income in such groupings, according to the             
          "asset method" set out in section 1.861-8(e)(2)(v), Income Tax              
          Regs.                                                                       
               The use of the asset method requires the taxpayer to place             
          its assets in either the statutory or residual grouping,                    
          according to the type of income the assets produce.  The asset              
          values are determined by an average of the asset values at the              
          beginning and the end of the year.  Sec. 1.861-8(e)(2)(v), Income           
          Tax Regs.  On the basis of the ratio of asset values, the                   
          taxpayer apportions the deductions to those two groupings.  Id.;            
          see sec. 1.861-8(g), Examples (1) and (2), Income Tax Regs.4                

          3  There are certain exceptions to this broad rule that do not              
          apply here.  Sec. 1.861-8(e)(2)(iii) and (iv), Income Tax Regs.             
          In addition, a taxpayer may elect to apportion interest expense             
          according to gross income.  Sec. 1.861-8(e)(2)(vi), Income Tax              
          Regs.  Because petitioner did not so elect and neither party                
          contends that the gross income method should be used, we do not             
          discuss the rules for its application.                                      
          4  Sec. 1.861-8(g), Income Tax Regs., provides:                             
                                                                                     
               Example (1)--Interest--(i) * * *  [X has $150,000 of                   
               interest expense.]                                                     
               Tentative apportionment on the basis of assets * * *                   
               Assets * * * that generate                                             
               U.S.-source income * * * ..................$3,200,000                  
               Assets * * * that generate                                             
               foreign-source income * * * ...............   800,000                  
               Total...................................... 4,000,000                  
                                                             (continued...)           




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  Next

Last modified: May 25, 2011