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subpart F grouping; (2) then adding together (a) all the assets
and the portions of loan assets that produced subpart F income
according to the income they produced, and (b) all the assets and
portions of loan assets that produced non-subpart F income
according to the income they produced; (3) using these subtotals
to calculate a percentage of the total asset values in each
grouping; (4) and then apportioning the interest deduction
between the two groupings, based on these percentages.
The divergent approaches of the parties to the asset method
are explained by the fact that section 1.861-8(e)(2)(v), Income
Tax Regs., assumes that any given asset will produce income
belonging to only one grouping--statutory or residual.6 This
assumption is reflected in the examples found in section 1.861-
8(g), Income Tax Regs. Because the regulations simply do not
contemplate a situation where a single asset produces income in
more than one grouping, we are left with the task of determining
the apportionment of the loan assets "in a manner which reflects
to a reasonably close extent the factual relationship between the
6 We note that respondent has substantially revised these
regulations, and addressed this ambiguity by providing specific
rules for the case where an asset produces income in more than
one grouping. Sec. 1.861-9T(g)(3), Temporary Income Tax Regs.,
53 Fed. Reg. 35477-35484 (Sept. 14, 1988), effective for tax
years beginning after Dec. 31, 1986. Respondent's solution in
this case to the silence in the "old" regulations is identical to
her approach in the "new" temporary regulations. However, the
"new" regulations were not in force for the tax year at issue,
and we do not consider it in reaching our own conclusions.
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