Taiyo Hawaii Company, Ltd. - Page 17

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          approaches under which it is seeking both to avoid the excess               
          interest tax under section 884(f)(1)(B) and, in the process, to             
          avoid bearing the tax burden of another provision of the branch             
          profit tax regime.                                                          
               In that connection, petitioner did not make an election                
          under section 1.884-4T(b)(7), Temporary Income Tax Regs.                    
          (finalized in 1992 as sec. 1.884-4(c)(1), Income Tax Regs.), 53             
          Fed. Reg. 34054 (Sept. 2, 1988), to treat the accrued interest as           
          paid in the year of accrual, thereby relieving itself of the                
          potential for excess interest tax liability.8  The election by a            
          foreign corporation must be made with its income tax return, its            
          amended income tax return, or a separate written notice to the              
          Commissioner of Internal Revenue, none of which was done in this            
          case.  See sec. 1.884-4T(b)(7)(iii), Temporary Income Tax Regs.,            
          supra (finalized as sec. 1.884-4(c)(1)(iii), Income Tax Regs.).             
               After respondent's audit began, petitioner filed amended               
          Forms 1120F for the years under consideration seeking to                    
          eliminate any excess interest by attempting an election to reduce           
          the affected liabilities under section 1.884-1(e)(3), Income Tax            
          Regs.  Finally, after filing the petition in this case,                     

               8  If petitioner had made that election, it would have been            
          binding for all years, and petitioner would then have been                  
          subject to a 10-percent withholding obligation under art. 13 of             
          the U.S.-Japan Income Tax Treaty (the treaty).  Convention for              
          the Avoidance of Double Taxation, Mar. 8, 1971, U.S.-Japan, art.            
          13, 23 U.S.T. (Part I) 967, 990.  Under the treaty, the                     
          withholding under sec. 1442 is reduced from 30 to 10 percent.               

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