Sunoco, Inc. and Subsidiaries - Page 3




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             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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