- 23 -
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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