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on deductions extended to situations where the failure to match
was not attributable to the payee’s method of accounting (but
instead was attributable to a treaty exclusion from the payee’s
income), it “[went] beyond applying the matching principle of
section 267(a)(2).” Tate & Lyle I at 670. Accordingly, insofar
as the challenged regulation precluded the deduction of properly
accrued interest owed to a foreign person that was entitled to
exclude the interest from gross income under a treaty, it was
“manifestly beyond the mandate of the statutory authorization and
therefore * * * invalid”. Id. at 671.
The Court of Appeals for the Third Circuit reversed in Tate
& Lyle II. The Court of Appeals found that our interpretation
failed to give appropriate consideration to the structure of the
statute, in particular the interaction of section 267(a)(2) and
(3): “If, as the Tax Court found * * *, the plain meaning of
section 267(a)(3) requires the Secretary to apply exactly the
same matching principle of section 267(a)(2) to foreign persons,
then the language of section 267(a)(3) is redundant.” Tate &
Lyle II at 104. Because in the Court of Appeals’s view “Congress
intended more” in enacting section 267(a)(3), Tate & Lyle II at
104 n.12, the court concluded that section 267(a)(3)’s mandate to
apply the matching principle in the case of foreign persons was
not clear. Consequently, the Court of Appeals reasoned, under
the Chevron doctrine, see Chevron U.S.A., Inc. v. Natural Res.
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