- 196 -
returns, it is not entitled to any deductions. Respondent
contends that LTD should be denied the deduction for interest
paid to clients. Respondent argues that interest paid or accrued
on indebtedness is characterized as a deduction by the Code and
that a deduction for interest should therefore be denied.
Respondent contends that, as the interest was recorded on LTD's
corporate books as an expense, respondent's treatment of the
interest is consistent with LTD's own records. Additionally,
respondent contends that LTD should be denied all other
deductions.
In the instant case, we must examine four types of
"deductions": (1) the interest "deductions" included as a direct
cost in LTD's "Interest Income" category, (2) the direct costs in
all of LTD's income categories other than "Interest Income", (3)
compensation expenses for the fees already paid by LTD to INC,
and (4) additional compensation expenses potentially allocated to
LTD pursuant to section 482. As to the interest "deductions"
included as a direct cost in LTD's "Interest Income" category, we
have concluded, supra p. 106, that LTD should include in its
income only the amounts that it retained as interest spreads from
certificates of deposit and bank deposits. Accordingly, as the
interest paid by LTD to its clients on pooled investments is
neither income nor a deduction to LTD, we need not address such
amounts. As to the additional compensation expenses potentially
allocated to LTD pursuant to section 482, we address such
Page: Previous 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 NextLast modified: May 25, 2011