- 41 -
section 861 apportion "deductions" which, in the case of
interest expenses means the amount deductible under section
163. In this connection, respondent points out that
section 1.861-8(a)(2), Income Tax Regs., is headed
"Allocation and apportionment of deductions in general",
and that "there is nothing in the Regulations suggesting
that the word 'deduction' should be defined differently
under Treas. Reg. �1.861-8 than elsewhere in the Internal
Revenue Code."
We disagree with petitioner that the language of
section 1.861-8(e)(2)(i), Income Tax Regs., "raises a
contextual ambiguity with respect to the precise
definition of the terms 'interest expense' and 'the cost
of borrowing.'" We also disagree that those terms were
intended, or can be interpreted in the context of section
1.861-8(e)(2), Income Tax Regs., to refer to "net interest
expense." In our view, the allocation and apportionment
of net interest expense under section 1.861-8(e)(2), Income
Tax Regs., is not permitted by the regulations; it would
subvert the operation of the source rules, and it would
lead to incongruous and erroneous results.
We believe that petitioner misconstrues section 1.861-
8(e)(2)(i), Income Tax Regs., and finds an ambiguity where
none exists. As discussed above, the rules of general
Page: Previous 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 NextLast modified: May 25, 2011