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taxpayer for payment of the debt. When money is
borrowed for a specific purpose, such borrowing
will generally free other funds for other
purposes and it is reasonable under this approach
to attribute part of the cost of borrowing to
such other purposes. For the method of
determining the interest deduction allowed to
foreign corporations under section 882(c), see
sec. 1.882-5. [Sec. 1.861-8(e)(2)(i), Income Tax
Regs.]
This is the provision of the regulations on which
petitioner principally relies, sec. 1.861-8(e)(2)(i),
Income Tax Regs. Based on the above approach, the
regulations provide as follows:
the aggregate of deductions for interest shall
be considered related to all income producing
activities and properties of the taxpayer and,
thus, allocable to all the gross income which
the income producing activities and properties
of the taxpayer generate, have generated, or
could reasonably have been expected to generate.
[Sec. 1.861-8(e)(2)(ii), Income Tax Regs.]
After stating the general rule in section 1.861-
8(e)(2)(i), Income Tax Regs., that interest expense is
"allocable to all gross income" of the taxpayer, the
regulations provide various methods to apportion the
taxpayer's interest expense between the statutory
grouping of gross income (or among the statutory groupings
of gross income) and the residual grouping. See sec.
1.861-8(e)(2)(v) and (vi), Income Tax Regs. Under the
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