T.C. Memo. 1997-100
UNITED STATES TAX COURT
TRINOVA CORPORATION AND SUBSIDIARIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2931-94. Filed February 27, 1997.
P, a corporation, filed a consolidated tax return
with its affiliated companies, including AG, a
controlled foreign corporation for purposes of sec.
957(a), I.R.C. In 1986, AG had gross income from
royalties, interest, and exchange gains. R stipulated
that the exchange gains constituted non-subpart F
income to P. In order to compute the amount of P's net
subpart F income, P and R both allocated AG's
deductions for interest expense, swap losses, and Swiss
capital tax against AG's income using the asset method
of sec. 1.861-8(e)(2)(v), Income Tax Regs. R used the
asset method by prorating AG's assets between the
subpart F and non-subpart F groupings based on the
gross income in those categories produced by the
assets. P apportioned assets according to the income
they normally produced, and apportioned all assets and
all deductions to subpart F income. R apportioned
deductions for exchange losses ratably across all gross
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