- 8 -
asset method to both subpart F and non-subpart F income, based on
the value of AG's assets, divided between the two categories
based on the gross income in each category produced by the loan
assets. Respondent allocated and apportioned all exchange losses
ratably across all gross income.
There is no dispute as to whether any of the expenses at
issue may be deducted, but rather merely as to how they should be
allocated and apportioned.
Statutory and Regulatory Framework
The statutory authority governing deductions from subpart F
income is section 954(b)(5), which provides that gross subpart F
income "shall be reduced, under regulations prescribed by the
Secretary, so as to take into account deductions (including
taxes) properly allocable to such income." The regulations under
section 954 offer little guidance, other than the admonition that
"no expense, tax, or other deduction shall be allocated to an
item or category of income to which it clearly does not apply."
Sec. 1.954-1(c), Income Tax Regs.
The "regulations prescribed by the Secretary" in force for
the taxable year at issue are found in section 1.861-8, Income
Tax Regs., governing the allocation of deductions between income
from sources within and without the United States. Section
1.861-8(f)(1)(v), Income Tax Regs., specifies that "This section
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011