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(G) any movable property (other than a
vessel or aircraft) which is used for the
purpose of exploring for, developing,
removing, or transporting resources from
ocean waters or under such waters when used
on the Continental Shelf of the United
States;
[Emphasis added.]
In pertinent part, section 1.956-1T(b)(4), Temporary Income
Tax Regs. 53 Fed. Reg. 22163, 22165 (June 14, 1988), provides:
Treatment of certain investments of earnings in United
States property. (i) Special Rule. For purposes of
1.956-1(b)(1) of the regulations [which, as pertinent,
paraphrases section 956(a)(1)], a controlled foreign
corporation will be considered to hold indirectly * * *
at the discretion of the District Director, investments
in U.S. property acquired by any other foreign
corporation that is controlled by the controlled
foreign corporation, if one of the principal purposes
for creating, organizing, or funding (through capital
contributions or debt) such other foreign corporation
is to avoid the application of section 956 with respect
to the controlled foreign corporation. * * *
III. Summary of Arguments of the Parties
A. Respondent’s Arguments
MFE controls MFE N.V., and respondent argues that a
principal purpose for creating, organizing, or funding MFE N.V.
was to avoid the application of section 956. Thus, respondent
would exercise his discretion to consider MFE as owning
(indirectly) any investment in U.S. property acquired by MFE N.V.
See sec. 1.956-1T(b)(4), Temporary Income Tax Regs. Respondent
considers the MFE N.V. CDs to be U.S. property within the meaning
of section 956(b)(1)(C) (U.S. property). Thus, respondent
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