- 20 -
as an agreement to treat this deduction in the same fashion as
interest expense. We have some doubt whether the Swiss capital
tax would generally qualify as interest for purposes of section
1.861-8(e)(2), Income Tax Regs. However, the factual foundation
for determination may be a critical element in resolving such
issue. Such being the case, we accept the agreement of the
parties for purposes of the case. Accordingly, this item should
be allocated in the same manner as we have concluded is proper
for interest expense.
Exchange Loss
The parties treat the deductions for exchange loss
differently. Respondent would put the deductions in a catch-all
category, and would apportion these losses all at once, ratably
across all income. Petitioner would deal with each item
individually, based on the nature of the underlying expense. We
think petitioner has the better approach. The most accurate way
to treat the deductions in question, in keeping with the mandate
that allocations be made "on the basis of the factual
10(...continued)
the Swiss capital tax does not relate to any one class of income,
and thus should be allocated ratably to all AG's gross income.
However, respondent thereafter on brief continues to argue that
the asset method should be used to apportion the expense in
accordance with the stipulation of the parties.
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