- 11 - 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 interestPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011