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allocated to the "class of gross income" to which each
deduction is "definitely related". Sec. 1.861-8(a)(3),
(b)(1), Income Tax Regs. A deduction is considered
definitely related to a class of gross income if it is
incurred as a result of, or incident to, an activity or
in connection with property from which such class of gross
income is derived and, thus, the deduction bears a factual
relationship to the class of gross income. Sec. 1.861-
8(b)(1) and (2), Income Tax Regs. Classes of gross income
are not predetermined but must be determined on the basis
of the deductions to be allocated. Sec. 1.861-8(b)(1),
Income Tax Regs. They may consist of one or more items of
gross income enumerated in section 61, such as compensation
for services, gross income derived from business, gains
derived from dealings in property, interest, rents,
royalties, dividends, etc. Sec. 1.861-8(a)(3), (b)(1),
Income Tax Regs.
If a deduction is definitely related to a class of
gross income that is included in more than one grouping of
gross income, or if the deduction is definitely related to
all of the taxpayer's gross income, then the regulations
further provide that the deduction shall be apportioned "by
attributing the deduction to gross income (within the class
to which the deduction has been allocated) which is in the
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