- 37 -
In this relatively inconclusive setting, we proceed to
examine the Treasury regulations.
G. The Regulations
In the instant case, we consider the validity of the
following regulations: (1) section 1.163-8T(c) and (c)(3)(ii),
Temporary Income Tax Regs.,16 52 Fed. Reg. 24999 (July 2, 1987),
16 Sec. 1.163-8T(c)(1) and (c)(3)(ii), Temporary Income Tax
Regs., supra, provides in pertinent part as follows:
Sec. 1.163-8T Allocation of interest expense among
expenditures (temporary).
(a) In General--(1) Application. This section
prescribes rules for allocating interest expense for
purposes of applying sections 469 (the “passive loss
limitation”) and 163(d) and (h) (the “nonbusiness interest
limitations”).
* * * * * * *
(c) Allocation of debt and interest expense–-(1)
Allocation in accordance with use of proceeds. Debt is
allocated to expenditures in accordance with the use of the
debt proceeds and, * * *. * * * debt proceeds and related
interest expense are allocated solely by reference to the
use of such proceeds, and the allocation is not affected by
the use of an interest in any property to secure the
repayment of such debt or interest. * * *
* * * * * * *
(3) Allocation of debt; proceeds not disbursed to
borrower--* * *
* ** * *** * ** *
(ii) Debt assumptions not involving cash disbursements.
If a taxpayer incurs or assumes a debt in consideration for
the sale or use of property, for services, or for any other
purpose, or takes property subject to a debt, and no debt
(continued...)
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