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in that prior case, docket No. 17171-91, similar to the one filed
in the instant case. Respondent thereafter conceded the prior
case in November 1992. On November 10, 1992, the Commissioner
opened a regulation project with respect to the computation of
combined taxable income under section 936(h). In October 1993,
respondent issued the notice of deficiency in the instant case,
determining deficiencies in petitioner's Federal income taxes for
1985 and 1986 in the amounts of $30,504,383 and $42,640,008,
respectively. Respondent determined that petitioner was not
entitled to the amount of the section 936 tax credit claimed on
its returns for the years at issue. The petition in the instant
case was filed January 4, 1994. On January 12, 1994,
respondent's proposed amendment to Q&A-12 was published in the
Federal Register. See infra note 5.
A secondary dispute in the instant case involves the
treatment of interest expense with respect to computing combined
taxable income under section 936. We are asked to decide whether
petitioner may net interest income against interest expense in
determining the amount of interest deduction to be allocated and
apportioned in computing combined taxable income. Respondent
contends that interest netting violates section 1.861-8(e)(2),
Income Tax Regs., and petitioner must allocate and apportion the
amount of its gross interest expense in determining combined
taxable income. As a preliminary matter, we summarily reject
respondent's argument and find, without further analysis, on the
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