- 40 -
106 T.C. 1, 6 (1996), and Computervision Intl. Corp. v.
Commissioner, T.C. Memo. 1996-131, vacated and remanded
164 F.3d 73 (1st Cir. 1999). Petitioner also argues that
we should reject the "faulty" reasoning of the Court of
Appeals for the Second Circuit in its opinion reversing
this Court's Bowater, Inc. opinion. See Bowater, Inc.,
& Subs. v. Commissioner, 108 F.3d 12 (2d Cir. 1997).
Respondent argues that the subject regulations are not
ambiguous. To the contrary, respondent states that the
"plain language of the Regulations" promulgated under
section 861 "[mandates] the apportionment of interest
expense among all income producing activities, including
those that generate interest income, and [rejects] the
'netting' of interest expense and interest income".
Respondent argues that this is made clear by two examples
in the regulations, Examples (1) and (24) of section
1.861-8(g), Income Tax Regs., in which "'gross' interest
expense, i.e., without reduction for interest income, [is
apportioned] among each of the hypothetical taxpayer's
income producing activities, including those that generate
interest income." Respondent also argues that petitioner
misinterprets "the Regulation's fungibility concept".
Finally, respondent argues that petitioner's position
ignores the fact that the regulations promulgated under
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