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derived from sources within the United States shall be
treated as income from sources without the United States.
See sec. 1.862-1(a)(1)(i), Income Tax Regs.
The record in the instant case does not expressly
provide the source of the interest income earned by any
member of petitioner's affiliated group of corporations
during any of the years in issue. Nevertheless, we infer
that the interest income of petitioner's affiliated
corporations, for the most part, would be treated under
the source rules as U.S. source income. Otherwise, if the
interest income of petitioner's affiliated corporations
were treated as foreign source income, then, in each case,
the interest income would be included in the numerator of
the limiting fraction under section 904(a) and would offset
the interest expenses in that grouping. Thus, if the
interest income of petitioner's affiliated corporations
were foreign source income, netting would have little or no
impact on the amount of foreign tax credit. This inference
is confirmed in the case of the interest income earned by
the members of petitioner's group for 1986, as discussed
above.
After finding the source of each item of the
taxpayer's gross income and grouping the items of gross
income into the statutory and residual groupings, the next
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