- 24 -
under section 482; respondent accordingly disallowed what he
determined were excessive interest deductions claimed by CFC--
$52,870 in 1992 and $19,105 in 1993--and determined that like
amounts were properly allocated to the Cordeses as income from
constructive dividends, rather than from interest.23 See sec.
1.482-1A(b)(1), Income Tax Regs.
On brief, respondent conceded that CFC may deduct as
interest expense--and the Cordeses may report as income from
interest, rather than from constructive dividends--amounts equal
to those calculated pursuant to section 1.482-2(a)(2)(iii),
Income Tax Regs.; i.e., the safe-haven interest rate.24
Respondent maintained that the amounts of the transfers in excess
of those computed in accordance with section 1.482-2(a)(2)(iii),
Income Tax Regs., are nondeductible interest expenses with regard
to CFC and income from constructive dividends with regard to the
Cordeses.
23In his notice of deficiency, respondent failed to reduce
the Cordeses’ interest income by the amounts he reallocated to
income from constructive dividends. In his reply brief,
respondent conceded that the Cordeses may reduce interest income
reported on their returns to the extent we hold the transfers are
income to the Cordeses from constructive dividends.
24The parties have not computed the safe-haven interest
rates applicable under sec. 1.482-2(a)(2)(iii), Income Tax Regs.
Our holding is not to be construed in any way as allowing
respondent to reallocate, with respect to these items, more than
$52,870 in 1992 or $19,105 in 1993.
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