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Commissioner, 998 F.2d 513 (7th Cir. 1993), affg. in part and
revg. in part T.C. Memo. 1991-66, affg. T.C. Memo. 1989-636, and
affg. in part and revg. in part T.C. Memo. 1988-318, and Norwest
Corp. v. Commissioner, T.C. Memo. 1992-282, affd. 69 F.3d 1404
(8th Cir. 1995), are inapplicable for the same reasons.
Respondent's reliance on the regulations under section
901(i), and the background material of those regulations, is also
misplaced. Section 901(i) was added to the Code in 1986, to
codify the subsidy rules in section 1.901-2(e)(3), Income Tax
Regs. See H. Conf. Rept. 99-841 (1986), 1986-3 C.B. (Vol. 4) 1,
593; S. Rept. 99-313 (1986), 1986-3 C.B. (Vol. 3) 1, 325; H.
Rept. 99-426 (1985), 1986-3 C.B. (Vol. 2) 1, 352.
The background material, cited by respondent, provides:
Special treatment for government (or government-
owned) entities also was rejected because it would
create the potential for a credit to be claimed for a
tax nominally paid by or on behalf of a U.S. person
when the substance of the transaction with a government
entity was to grant a tax holiday to the U.S. taxpayer.
This is especially true in the case of a transaction
with a government entity that pays taxes: where a tax
holiday for the U.S. taxpayer is intended, the
government entity could simply assume a tax liability
that was nominally borne by the U.S. person and receive
a tax credit against its own liability in the amount of
the tax nominally paid on the U.S. person's behalf.
* * * [T.D. 8372, 1991-2 C.B. 338.]
Example (4) of section 1.901-2(e)(3)(iv), Income Tax Regs.
(1991), discusses a situation very similar to the one herein,
providing that a credit to a State petroleum authority for a
portion of the income taxes paid by it on behalf of a U.S.
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