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Discussion
A. Secretary’s Authority Under Section 267(a)(3)
1. Introduction
We must decide whether petitioner, an accrual basis
taxpayer, may deduct the interest at issue during the taxable
years in which the interest was accrued or must delay the
deductions until the taxable years in which the interest was
actually paid. The answer to the question hinges on the validity
of section 1.267(a)-3, Income Tax Regs., as that section applies
to the interest in the instant case. In general, the regulation
would prevent petitioner from deducting the interest until the
amounts are actually paid. Not surprisingly, respondent argues
in favor of the validity of the regulation, while petitioner
argues against it. We considered the identical issue in Tate &
Lyle, Inc. v. Commissioner, 103 T.C. 656 (1994) (Tate & Lyle I),
revd. and remanded 87 F.3d 99 (3d Cir. 1996) (Tate & Lyle II), in
which we held that the regulation was invalid. In light of the
reversal by the Court of Appeals for the Third Circuit, we
reconsider our holding. We now hold that the regulation is valid
as a permissible construction of the statutory language that
authorizes it. To the extent our opinion in Tate & Lyle I is
inconsistent, we will no longer follow it.
2. Statutory and Regulatory Provisions
Section 1.267(a)-3, Income Tax Regs., is a legislative
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