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shall be collected on the basis of gross income, determined in
accordance with �1.882-1 but without regard to any deductions
otherwise allocable." Sec. 1.882-4(b)(2), Income Tax Regs.
2. Discussion
Petitioners note that regulations promulgated pursuant to
section 882(c)(2), as amended in 1990, requiring a "timely filed
tax return" before a foreign taxpayer is allowed to offset
effectively connected income with deductions allocable thereto,
are effective for taxable years ended after July 31, 1990, and
therefore that such regulations post-date all of the years in
issue. Additionally, petitioners contend that the prior version
of such regulations did not contain similar language requiring
that a tax return be timely filed as a precondition to deducting
items properly allocable to effectively connected income.
However, as indicated supra, the prior version of the
regulations, which is applicable here, did provide that a foreign
corporation would not be allowed such deductions unless it filed
a true and accurate return. In the instant cases, LTD has filed
no return at all and therefore has failed to comply with the
express requirement of the applicable regulations.
Respondent, citing Blenheim Co. v. Commissioner, 125 F.2d
906, 911 (4th Cir. 1942), affg. 42 B.T.A. 1248 (1940), and
Georday Enters., Ltd. v. Commissioner, 126 F.2d 384, 388 (4th
Cir. 1942), affg. an unpublished opinion of the Board of Tax
Appeals dated Sept. 30, 1940, contends that, because LTD filed no
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