- 13 -
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).
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011