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processing allowances exceeded nonrecoverable expenses each year
from 1968 to 1980 except 1971 and 1977.
G. Respondent’s Determination and Petitioner’s Election
On March 29, 1989, respondent issued a notice of deficiency
to petitioner for 1979, 1980, and 1981. Respondent did not
determine a deficiency for 1978, but adjusted petitioner’s net
operating loss to be carried forward from 1978 to 1979.
Petitioner timely elected for section 1.901-2, Income Tax Regs.,
to apply in deciding whether its OMT and other Canadian taxes are
creditable under section 901.
OPINION
A. Background and Contentions of the Parties
The parties dispute whether the OMT is creditable under
section 901. Our decision on this issue depends on whether the
OMT is an income tax under section 1.901-2, Income Tax Regs.
A taxpayer may deduct foreign taxes unless the taxpayer
elects and is entitled to use the foreign tax credit. Sec.
901(a). If a taxpayer is a citizen or a domestic corporation,
the taxpayer may be entitled to a credit for any income, war
profits, and excess profits tax paid or accrued during the
taxable year to a foreign country or possession of the United
States. Sec. 901(b)(1).2
2 SEC. 901(b) provides in pertinent part:
(continued...)
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