-3-
references are to the Internal Revenue Code as in effect
during the years in issue, unless stated otherwise.
This issue involves the computation of income from
sources without the United States, the numerator of the
limiting fraction under section 904(a). Specifically,
in allocating and apportioning interest expenses for
purposes of computing taxable income from sources without
the United States for the years in issue, the question is
whether section 1.861-8(e)(2), Income Tax Regs.,
contemplates that the aggregate interest expense
incurred by each member of petitioner's affiliated group
of corporations for the taxable year can first be offset
by that member's interest income. Stated more simply, the
issue is whether netting of interest expense and interest
income is permitted by section 1.861-8(e)(2), Income Tax
Regs.
As a preliminary matter, we must decide an evidentiary
objection raised by respondent. Respondent filed a motion
in limine to exclude the testimony of an economist, Dr. J.
Gregory Ballentine, who was called by petitioner as an
expert witness. Respondent argues that Dr. Ballentine's
testimony should be excluded because it represents
"irrelevant and immaterial legal conclusions and opinions
and does not assist the Court." Respondent also contends
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