108 T.C. No. 27
UNITED STATES TAX COURT
TAIYO HAWAII COMPANY, LTD., Petitioner v. COMMISSIONER
OF INTERNAL REVENUE, Respondent
Docket No. 10159-95. Filed June 25, 1997.
P, a foreign corporation wholly owned by a foreign
conglomerate, was engaged in real estate activity in
Hawaii. P borrowed funds from foreign banks and also
received advances from its parent and a related foreign
corporation. Interest on bank borrowing was paid, and
interest on advances from related corporations was
accrued and not paid. P reported the interest as
deductible. After an audit examination, respondent
determined that the accrued but unpaid interest was
subject to the excess interest tax provided for in sec.
884, I.R.C. P, although reporting the advances from
related corporations as debt, now claims that they
were, in substance, equity. P also contends that the
accrued and unpaid interest is not deductible due to
sec. 267, I.R.C., and therefore sec. 884 should not
apply. Finally, if it is concluded that sec. 884
applies, P argues that certain of its property did not
qualify as part of the base for computing the excess
interest tax.
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