Taiyo Hawaii Company, Ltd. - Page 1

                                   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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