International Multifoods Corporation and Affiliated Companies - Page 11

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          class of gross income to which the property ordinarily gives rise           
          in the hands of the taxpayer.                                               
               Respondent argues that petitioner's investment in Paty would           
          ordinarily give rise to foreign source dividend income, and,                
          therefore, petitioner's loss on the disposition of its Paty stock           
          constitutes a foreign source loss.  See Black & Decker Corp. v.             
          Commissioner, T.C. Memo. 1991-557, affd. 986 F.2d 60 (4th Cir.              
          1993).  Respondent argues that the fact that petitioner never               
          actually received any dividends from Paty is irrelevant to the              
          determination of the class of gross income to which the Paty                
          stock loss is allocable, since this determination is based on an            
          objective consideration of the facts and circumstances.  See id.            
               Respondent's reliance upon sections 861 and 862 to justify             
          application of section 1.861-8(e)(7), Income Tax Regs., is                  
          misplaced, as these sections are inapplicable in the instant                
          case.  The Tax Reform Act of 1986 amended these sections to                 
          eliminate their applicability to the sale of noninventory                   
          personal property.  See Tax Reform Act of 1986, sec.                        
          1211(b)(1)(B) and (C), 100 Stat. 2536.  The impact of these                 
          changes becomes evident when current section 861(a) is read in              
          the context of section 861(b), which provides:  "From the items             
          of gross income specified in subsection (a) as being income from            
          sources within the United States there shall be deducted the                
          expenses, losses, and other deductions properly apportioned or              
          allocated thereto".  Following its amendment in the Tax Reform              

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