International Multifoods Corporation and Affiliated Companies - Page 17

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               In the instant case, we must do "the best we can" in                   
          applying section 865 and the policy underlying it to a situation            
          involving a loss realized by a U.S. resident on the sale of                 
          noninventory personal property.  Certainly, we are not free to              
          ignore section 865 simply because the Secretary has delayed                 
          promulgating the appropriate regulations.  Occidental Petroleum             
          Corp. v. Commissioner, supra at 829.  In enacting section 865,              
          Congress determined that "the residence of the seller generally             
          is the location of much of the underlying activity that generates           
          income derived from sales of personal property".  H. Rept. 99-              
          426, supra at 360, 1986-3 C.B. (Vol. 2) at 360.  Section                    
          865(j)(1) directs the Secretary to promulgate regulations to                
          carry out the purpose of section 865; i.e., that gains and losses           
          on the sale of noninventory personal property generally are                 
          sourced at the residence of the seller.                                     
               The Explanation of Provisions accompanying the proposed                
          regulations states that "Section 1.865-2(a) provides the general            
          rule that stock losses are allocated in the same manner as stock            
          gains * * *.  Thus, stock loss generally is allocated to the                
          residence of the seller."  61 Fed. Reg. 35697 (July 8, 1996)                
          (emphasis added).  Moreover, the proposed regulations, if adopted           
          in their current form, would source petitioner's Paty stock loss            
          at the residence of the seller; i.e., in the United States.  See            
          sec. 1.865-2(a)(1), (e)(2)(i), Proposed Income Tax Regs., 61 Fed.           
          Reg. 35696, 35697-35700 (July 8, 1996).                                     

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