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netting is or is not permitted. These stipulations are
summarized in the appendix to this Opinion.
In the appendix, each member's interest expense for
1982, 1983, and 1984 is apportioned to sources without the
United States in accordance with the asset method described
by section 1.861-8(e)(2)(v), Income Tax Regs. The parties
have stipulated the ratio of each member's assets which
relates to activities and properties that generated foreign
source income during each year. See generally sec. 1.861-
8(e)(2)(v), Income Tax Regs. Using that asset ratio, the
amount of a member's interest expense to be apportioned to
sources without the United States is computed, if netting
is not permitted, by multiplying the ratio and the member's
gross interest expense, or, if netting is permitted, by
multiplying the ratio and the member's net interest
expense.
In the appendix, each member's interest expense for
1986 is apportioned to sources without the United States
in accordance with one of the optional gross income methods
described by section 1.861-8(e)(2)(vi), Income Tax Regs.
Generally, under that provision, assuming certain condi-
tions are met, the deduction for interest is apportioned to
sources within or without the United States ratably on the
basis of a taxpayer's gross income. See id.
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