Trinova Corporation and Subsidiaries - Page 15

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          deduction and the grouping of gross income."  Sec. 1.861-8(c)(1),           
          Income Tax Regs.                                                            
               In making our determination, we note that in Occidental                
          Petroleum Corp. v. Commissioner, 55 T.C. 115, 124 (1970), the               
          regulations at issue there, section 1.613-4(a), Income Tax Regs.,           
          provided that expenses not directly attributable to specific                
          property were to be "fairly apportioned", and we held for the               
          party whose approach produced a "fairer apportionment".  We see             
          little difference between an approach that is "fairer" and one              
          that more closely reflects the "factual relationship" between the           
          income and the expenses.  For the reasons hereinafter set forth,            
          we find that respondent's approach to the asset method better               
          reflects the factual relationship involved in this case.                    
               Preliminarily, we reject petitioner's argument that the                
          predictability of income is the critical element in the                     
          allocation of deductions against it.  Even though petitioner                
          cannot always predict AG's foreign exchange income from year to             
          year, AG nonetheless had exchange income in 1986.  This is no               
          different from the case of many businesses that do not know,                
          based on the vagaries of the market, whether they will have                 
          losses or gains in a given year.  In the case of those                      
          businesses, they allocate deductions against their income, and if           
          they have no income, they carry over the deductions.                        







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