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treaty reduces the tax). In that case, present law
already imposes matching. However, regulations may be
necessary when a foreign corporation uses a method of
accounting for some U.S. tax purposes (e.g., because
some of its income is effectively connected), but when
the method does not apply to the amount that the U.S.
person seeks to accrue. [H. Rept. 99-426, supra at
940, 1986-3 C.B. (Vol. 2) at 940; S. Rept. 99-313,
supra at 960, 1986-3 C.B. (Vol. 3) at 960.]
We believe a set of principles is discernible from the foregoing.
The authority granted by section 267(a)(3) does not apply (i.e.,
“Regulations will not be necessary”) in the case of effectively
connected income because (we infer) the foreign recipient in this
instance would have a U.S. method of accounting for such income,
triggering a straightforward application of section 267(a)(2)
(i.e., “present law already imposes matching”). Regulations
under section 267(a)(3) would be necessary, however, where treaty
benefits are available. Finally, the last sentence in the
passage illustrates the fundamental principle underlying the
intended regulatory authority, in our view; namely, the scope of
the regulations under section 267(a)(3) is generally determined
by the presence or absence of a U.S. method of accounting for the
income item in the hands of the foreign recipient, where the U.S.
payor seeks to accrue a deduction with respect to that item.8
8 We also note that other provisions of the regulations that
have been issued pursuant to sec. 267(a)(3) (i.e., besides the
provision at issue herein) reflect this principle. The
provisions in general impose the cash method on the U.S. payor
under sec. 267(a)(3) only where the related foreign payee lacks a
U.S. method of accounting for the item otherwise accruable by the
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