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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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