Intergraph Corporation and Subsidiaries - Page 12

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            deduction under section 163(a).  Respondent now argues that                                   
            Intergraph was a mere guarantor of the overdraft amount and                                   
            therefore that Intergraph is not entitled to the claimed foreign                              
            currency loss under section 988 and the claimed interest expense                              
            deduction under section 163(a).                                                               

                                                OPINION                                                   
            Foreign Currency Loss and Interest Expense                                                    
                  Generally, under section 988 a taxpayer is entitled to an                               
            ordinary loss deduction for a foreign currency loss arising from                              
            a “section 988 transaction”.  Sec. 988(a)(1)(A).  Where a                                     
            taxpayer is a primary obligor on a debt obligation that is                                    
            denominated in a nonfunctional currency, repayment of the debt                                
            obligation generally qualifies as a “section 988 transaction”.                                
            Sec. 988(c)(1)(A) and (B).  A foreign currency loss occurs to the                             
            extent a loss is realized by reason of a change in the exchange                               
            rate between the obligor's functional currency and the                                        
            nonfunctional currency from the date the obligor becomes                                      
            obligated on the debt obligation to the date the obligor makes                                
            payment on the debt obligation.  Sec. 988(b)(2) and (c)(2)(A) and                             
            (3)(A).                                                                                       
                  On brief, petitioner notes that the provisions of section                               
            988 and the legislative regulations thereunder do not expressly                               
            provide that a taxpayer's payment, as a mere guarantor, under a                               
            guaranty agreement would not qualify as a "section 988                                        
            transaction" giving rise to a recognizable foreign currency loss.                             



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