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In our view, petitioner's position that it "may
allocate and apportion net, rather than gross, interest
expense under section 1.861-8(e)(2), Income Tax Regs." is
foreclosed by the language of that regulation. Section
1.861-8(e)(2)(ii), Income Tax Regs., provides that "the
aggregate of deductions for interest" are allocable to
"all the gross income" of the taxpayer for the year. As we
read it, section 1.861-8(e)(2)(ii), Income Tax Regs., thus
directs that the gross amount of the taxpayer's interest
deductions, i.e., the aggregate of deductions for interest,
be allocated to all of the taxpayer's gross income. In
effect, section 1.861-8(e)(2)(ii), Income Tax Regs.,
forecloses petitioner's position that net interest expense,
i.e., less than "the aggregate of deduction for interest",
can be allocated to less than "all of the taxpayer's gross
income", i.e., the excess of the taxpayer's gross income
over the portion of the taxpayer's interest income that is
offset by interest expenses.
Furthermore, petitioner's position that it "may
allocate and apportion net, rather than gross, interest
expense" is foreclosed by sections 861(a)(1), 862(a)(1),
and the regulations promulgated thereunder, including
sections 1.861-2(a) and 1.862-1(a), Income Tax Regs. Those
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