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Thus, the regulations effectively combine the allocation and
apportionment steps for interest expense.
Finally, there are special rules for losses incurred in the
sale, exchange, or disposition of property. Normally, the
deduction for such a loss is allocated "to the class of gross
income to which such asset or property ordinarily gives rise in
4(...continued)
As a result of the above computations, X would apportion its
interest deduction as follows:
To gross income from sources within the United States
(residual grouping):
$3,200,000
$150,000 x .........................120,000
$4,000,000
To gross income from sources outside the United States
(statutory grouping):
$800,000
$150,000 x ........................ 30,000
$4,000,000
Total.........................................150,000
* * * * * * *
Example (2)--Interest--(i) * * * [X has $200,000
interest expense, $3,200,000 of assets related to its
domestic source income; $800,000 of assets related to its
foreign source income from Y; and $1,000,000 of assets
related to its foreign source income from Z.]
* * * * * * *
Tentative apportionment on the basis of assets
Interest expense apportioned to sources outside the United
States (statutory grouping):
($800,000 + $1,000,000)
$200,000 x ........$72,000
($800,000 + $1,000,000 + $3,200,000)
Interest expense apportioned to sources within the United
States (residual grouping):
$3,200,000
$200,000 x ........128,000
($800,000 + $1,000,000 + $3,200,000)
Total apportioned interest expense............200,000
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