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into Nihon Intergraph's checking account at Citibank Tokyo as
giving rise to a $1,923,103 foreign currency loss under section
988 and to a $520,432 interest deduction under section 163(a).
The claimed $1,923,103 foreign currency loss was computed by
subtracting from Intergraph's $6,484,169 cost of the �823,943,385
that it purchased on December 23, 1987, and transferred into
Nihon Intergraph's checking account, the historical $4,561,066
equivalent of the overdraft amount as reflected on Nihon
Intergraph's records. The $520,432 interest deduction that
petitioner claimed was based on interest that had accrued and
that was charged to the overdraft amount over the course of the
prior 2-1/2 years.
On audit of petitioner's 1987 consolidated Federal income
tax return, respondent determined that the overdraft amount
should be treated as a loan by Citibank Tokyo to Nihon
Intergraph, not as a loan to Intergraph, and thus that
Intergraph's transfer of the �823,943,385 into Nihon Intergraph's
checking account on December 23, 1987, should be treated as a
capital contribution to Nihon Intergraph and that Nihon
Intergraph, not Intergraph, should be treated as paying off the
overdraft amount. Because the mere purchase of foreign currency
to make a capital contribution to a corporation produces neither
a foreign currency loss nor an interest expense, respondent
disallowed Intergraph's claimed $1,923,103 foreign currency loss
under section 988 and Intergraph’s $520,432 claimed interest
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