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principal balance of the U.S. dollar denominated loans during
1986, solely to the subpart F grouping.9
Swap Losses
Both parties have allocated and apportioned the deductions
for swap losses using the asset method. Given the fact that the
regulations provide for the use of the asset method only in
respect of interest expense, section 1.861-8(e)(2)(v), Income Tax
Regs., we interpret the use of the asset method by both parties
as an agreement to treat swap losses in the same manner as
interest expense. In this connection, we note that, based on the
record herein, the swap losses involved streams of interest
payments, so that the treatment of the losses as interest expense
is appropriate. We therefore hold that the deduction for swap
losses will be allocated and apportioned using respondent's
approach to the asset method, discussed and upheld above.
Swiss Capital Tax
Similarly, both petitioner and respondent have allocated and
apportioned the deduction for the Swiss capital tax using the
asset method.10 Again, we interpret this use of the asset method
9 These adjustments can be made in the Rule 155 computation that
will be necessary in this case.
10 We note that respondent contends at one point on brief that
(continued...)
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