Taiyo Hawaii Company, Ltd. - Page 23

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          for what it now contends was the substance of the transaction.              
          Comdisco, Inc. v. United States, 756 F.2d 569, 578 (7th Cir.                
          1985); Estate of Weinert v. Commissioner, 294 F.2d 750, 755 (5th            
          Cir. 1961), revg. and remanding 31 T.C. 918 (1959); FNMA v.                 
          Commissioner, supra at 426.                                                 
               Having decided that petitioner is bound by the form of the             
          transaction and that, for purposes of section 884, the advances             
          in issue were debt as opposed to equity, we now consider                    
          petitioner's alternate arguments.  Because the accrued interest             
          has not been paid to the related party, petitioner contends that            
          section 267 prevents its deduction.  Petitioner argues that                 
          interest must be deductible for the excess interest tax to apply.           
               Petitioner's Proposed Deductibility Requirement--Section               
          267(a)(2) generally limits the deductibility of interest by the             
          payor until it is included in the related payee's gross income.             
          Section 267(a)(3) empowers the Secretary to promulgate                      
          regulations to apply the matching provisions of section 267(a)(2)           
          to include instances where the payee is a foreign person                    
          (entity).  In particular, petitioner relies on section 1.267(a)-            
          3(b)(1), Income Tax Regs.11  Petitioner argues that section                 

               11  Petitioner acknowledges and we note that the regulation            
          relied upon was published Dec. 31, 1992, in T.D. 8465, 1993-1               
          C.B. 28, a date subsequent to the years under consideration.                
          Petitioner, however, points out that the Commissioner had                   
          published the essence of that interpretation in Notice 89-84,               
          1989-2 C.B. 402, for taxable years beginning after Dec. 31, 1983.           

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