Taiyo Hawaii Company, Ltd. - Page 24

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          884(f)(1)(B) does not authorize the deduction of interest; it               
          merely provides the extent to which interest is allowable as a              
          deduction in the section 882 computation of ECI.  Petitioner                
          theorizes that we must look to section 163 for the deduction, and           
          in turn, the section 267 limitations would then apply.                      
               Respondent does not comment about or analyze whether                   
          petitioner's section 267 argument is correct.12  Instead,                   
          respondent argues that petitioner's proposed deductibility                  
          requirement is irrelevant because section 884 applies even if the           
          interest is not deductible.                                                 
               The excess interest tax statutory language, in its present             
          form, does not support petitioner's position that deductibility             
          of interest on debt to related creditors is a prerequisite to the           
          application of the excess interest tax.  Section 884(f)(1), as              
          enacted in the Tax Reform Act of 1986, Pub. L. 99-514, sec. 1241,           
          100 Stat. 2085, 2579, and amended by the Small Business Job                 
          Protection Act of 1996 (1996 Act), Pub. L. 104-188, sec.                    
          1704(f)(3), 110 Stat. 1755, 1879, provides:                                 
               SEC. 884(f).  Treatment of Interest Allocable to                       
               Effectively Connected Income.--                                        
               (1) In general.--In the case of a foreign corporation                  
               engaged in a trade or business in the United States (or                

               12  We do not decide here whether sec. 267 is applicable               
          under the circumstances found in this case.  Due to our ultimate            
          conclusion, it is unnecessary to decide which, if any, limitation           
          may have existed with regard to the deductibility of the interest           
          in question.                                                                

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