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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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