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Petitioners contend, and we agree, that CV and CVI are
entitled to apply the holding of Bowater, Inc. v. Commissioner,
supra, in calculating their CTI. Respondent, contending that
Bowater was wrongly decided, urges us to reverse it and hold that
gross, rather than net, interest expense must be apportioned in
computing CTI. We have considered respondent’s arguments, but
decline to overrule our prior case. See Coca Cola Co. & Subs. v.
Commissioner, 106 T.C. __ (1996). Respondent further argues that
a nexus is required between the interest income and expense to be
netted. We do not, however, read the cases that have allowed
netting of interest income against interest expense for purposes
of calculating the interest expense subject to apportionment to
require a nexus between the income and expense, although such a
nexus often may exist. Nor do we consider such a requirement to
be consistent with the approach of section 1.861-8(e)(2), Income
Tax Regs., or of Bowater, Inc. v. Commissioner, supra, which both
consider interest to be fungible for purposes of apportionment.
We, therefore, reject respondent’s argument and hold for
petitioners on this issue. Coca Cola Co. & Subs. v.
Commissioner, supra.
Accordingly, although in their returns with respect to CVI’s
taxable years in question, petitioners computed the commission
payable to CVI under the 50 percent of CTI method using gross
interest expense, they are entitled, pursuant to the authority of
Bowater, Inc. v. Commissioner, supra, to compute the commission
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