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amounts would never be included in the foreign person’s U.S.
gross income–-that is, irrespective of any method of accounting
of the foreign payee.7 We note also that the situation where the
amounts owed to the related foreign person are foreign source,
non-effectively connected income is denominated an “example” of
where the regulatory authority conferred was intended to be
exercised, which suggests other examples were also contemplated
where the foreign payee would lack a U.S. method of accounting.
The legislative history goes further in its guidance. It
specifically (i) contemplates the need for regulations when the
amounts owed to a related foreign person are eligible for treaty
benefits and (ii) suggests that it is the absence of a U.S.
method of accounting that determines the intended scope of the
regulatory authority. The House and Senate reports both provide:
Regulations will not be necessary when an amount
paid to a related foreign person is effectively
connected with a U.S. trade or business (unless a
7 In Tate & Lyle, Inc. v. Commissioner, 103 T.C. 656, 670
(1994) (Tate & Lyle I), we acknowledged that the foregoing
legislative history was “troublesome” with respect to our
“literal reading of section 267(a) and its matching principle” as
having application only where failures to match were attributable
to methods of accounting. Because we conclude in the instant
case, in contrast to Tate & Lyle I, that the statute is not
clear, the legislative history must be accorded greater weight.
Moreover, as respondent argues, the legislative history for
the predecessor of sec. 267(a)(2) suggests that Congress enacted
that section to cover cases where the payee would not include the
amount because the amount was accrued and deducted but never
actually paid. See S. Rept. 1242, 75th Cong., 1st Sess. (1937),
1937-2 C.B. 609, 630.
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