- 24 -
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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