Intergraph Corporation and Subsidiaries - Page 13

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            Petitioner and respondent, however, for purposes of this case,                                
            treat a payment, as a mere guarantor, under a guaranty agreement                              
            as not qualifying as a "section 988 transaction".  See sec.                                   
            988(c)(1)(B)(i); sec. 1.988-1T(a)(2)(i), Temporary Income Tax                                 
            Regs., 54 Fed. Reg. 38824 (Sept. 21, 1989).                                                   
                  As a general rule, under section 163(a), a taxpayer is                                  
            permitted an interest expense deduction only if the interest                                  
            represented a debt obligation of the taxpayer, and a guarantor is                             
            not entitled to an interest expense deduction with respect to                                 
            payments made in fulfillment of a mere guaranty obligation.                                   
            Hynes v. Commissioner, 74 T.C. 1266, 1287-1288 (1980).                                        
                  Petitioner argues that Intergraph should be treated as the                              
            primary debtor or obligor on the overdraft amount and that the                                
            total �823,943,385 balance of the overdraft amount should be                                  
            regarded as a loan made directly to Intergraph.  Petitioner                                   
            therefore argues that Intergraph, with regard to its payment of                               
            the overdraft amount, should be entitled to deduct under section                              
            988 a $1,923,103 foreign currency loss and under section 163(a) a                             
            $520,432 accrued interest expense.  Petitioner also argues that                               
            even if the overdraft amount is to be treated as a loan made to                               
            Nihon Intergraph, Intergraph should be regarded as a co-obligor                               
            on the loan and should be entitled to the foreign currency loss                               
            and interest expense deductions claimed under sections 988 and                                
            163(a).                                                                                       






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