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were members of the same controlled group of corporations as
defined in section 267(b)(3) and (f).
During the years in issue, petitioner was a bona fide
resident of the United States, and the Schneider Lenders were
bona fide residents of France, within the meaning of Article
3(1a) and (2a) of the Convention With Respect to Taxes on Income
and Property, July 28, 1967, U.S.-Fr., 19 U.S.T. 5281 (1967
Treaty). During the years in issue, neither the Schneider
Lenders nor SNC maintained a permanent establishment in the
United States within the meaning of the 1967 Treaty.
Article 10(1) of the 1967 Treaty would have applied to any
payments by petitioner of the accrued interest on the 1991 and
1992 Subordinated Loans that occurred before January 1, 1996. As
a result, the payments would have been exempt from taxes that
otherwise would have been due under sections 881 and 1442.
Petitioner did not claim deductions for the interest accrued
but unpaid with respect to the 1991 and 1992 Subordinated Loans
on its returns for taxable years 1991 and 1992. During the
course of the examination by respondent, petitioner informally
requested that it be allowed to deduct the amounts of interest
accrued in 1991 and 1992; namely, $21,075,101 and $38,541,695,
respectively. In the notice of deficiency, respondent determined
petitioner was not entitled to the deductions.
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