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applicability for the allocation and apportionment of
expenses, losses, and other deductions, set forth in
section 1.861-8(a), (b), and (c), Income Tax Regs., are
based on the approach that an expense, loss, or other
deduction should be allocated to a class of income,
composed of less than the taxpayer's entire gross income,
as to which the deduction bears a factual relationship,
and then, if necessary, apportioned between or among the
statutory and residual groupings of gross income. See sec.
1.861-8(a), (b), and (c), Income Tax Regs. On the other
hand, the rules that specifically govern the allocation
and apportionment of interest expenses, with two limited
exceptions, take the approach that interest expenses are
related to all income-producing activities and properties
of the taxpayer and thus are allocable to all of the
taxpayer's gross income. See sec. 1.861-8(e)(2)(i) and
(ii), Income Tax Regs.
The regulations state that the different approach
for allocating interest expenses is based on the fact
that "money is fungible and that interest expense is
attributable to all activities and property regardless of
any specific purpose for incurring an obligation on which
interest is paid." Sec. 1.861-8(e)(2)(i), Income Tax Regs.
Thus, the regulations use the phrase "money is fungible"
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