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In allocating and apportioning each member's interest
expense to sources without the United States under one
of the optional gross income methods described by section
1.861-8(e)(2)(vi), Income Tax Regs., petitioner started
with the gross amount of each member's interest expense
for the taxable year and did not offset that amount by
the interest income earned by that member during the year.
As mentioned above, petitioner chose to use the
foreign tax credit under section 901(a) in computing the
tax liability of its affiliated group of corporations for
consolidated return years 1982, 1983, 1984, and 1986. As
to each of those years, the amount of foreign taxes for
which a taxpayer could claim credit was subject to the
overall limitation of section 904. Under that limitation,
the amount of foreign tax credit could not exceed the
tentative U.S. tax for the year (i.e., the U.S. tax before
application of the foreign tax credit) multiplied by a
fraction, the numerator of which is the taxable income from
sources without the United States and the denominator of
which is the entire taxable income. Sec. 904(a).
Generally, in the case of an affiliated group of
corporations, the foreign tax credit is determined on a
consolidated basis. Sec. 1.1502-4(c), Income Tax Regs.
In computing the overall limitation under section 904(a)
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