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income, as contemplated under the source rules. Netting
would, thus, subvert the operation of those rules.
Netting would also lead to the incongruous and
erroneous results depicted in the hypothetical example
discussed above in which a taxpayer who realized interest
income entirely from foreign sources is treated the same as
a taxpayer who realized the same interest income entirely
from United States sources. As discussed above, to the
extent that a relatively greater amount of interest income
absorbed in the netting process is from foreign sources,
then netting actually produces a lower taxable income from
foreign sources than not netting.
As mentioned above, the issue in this case was first
decided in connection with the 1977 Regulations, in
Bowater, Inc., & Subs. v. Commissioner, 101 T.C. 207
(1993). In light of the opinion of the U.S. Court of
Appeals for the Second Circuit reversing our opinion in
Bowater, Inc., it is appropriate to reconsider our Bowater,
Inc. opinion. It is also appropriate to reconsider
Bowater, Inc., in light of the opinion of the U.S. Court
of Appeals for the Fifth Circuit in Dresser Indus., Inc.
v. United States, 238 F.3d 603 (5th Cir. 2001), in which
that court holds that interest netting is not permitted
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