International Multifoods Corporation and Affiliated Companies - Page 7

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          the remaining 1,597,135,239 shares.  The closing of the                     
          transaction occurred at Borden, Inc.'s, offices in New York, New            
          York, on March 31, 1987.                                                    
               Petitioner sold Paty because it proved to be an unprofitable           
          investment, principally due to price controls imposed by the                
          Brazilian Government.  With the exception of the taxable year               
          ended February 29, 1980, Paty never generated net income for any            
          year subsequent to MAL's acquisition of an interest in Paty.  At            
          the time of sale, Paty had a net deficit in earnings of                     
          $5,053,076.  Neither petitioner nor Damca received any dividends            
          from Paty.                                                                  
               Damca realized a loss of $3,922,310 upon the sale of its               
          Paty stock.  Of that amount, petitioner reported only $3,772,310            
          as a loss due to a $150,000 error in calculating losses.  On its            
          U.S. Corporation Income Tax Return (Form 1120) for the taxable              
          year ended February 29, 1988, petitioner reported the loss as a             
          U.S. source loss in computing its foreign tax credit limitation.            
          Respondent determined that the loss from the sale of the Paty               
          stock must be sourced outside the United States.                            


               The sole issue for decision is whether the loss realized by            
          petitioner on the sale of its Paty stock is to be sourced in the            
          United States for purposes of determining petitioner's foreign              
          tax credit limitation under section 904(a).                                 

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