- 15 -
our tax system. We understand Congress to have intended for the
statutes to deny some or all of a financial institution’s
otherwise allowable interest expense deduction to the extent that
the interest is allocable to the tax-exempt obligations it owns.
We do not understand Congress to have specifically spoken through
the statutes to the situation here, where tax-exempt obligations
are purchased and owned by a subsidiary of a financial
institution.
Respondent asserts that the adjusted bases of Peoples’
assets in the denominator include the adjusted basis of Peoples’
stock in Investments which, in turn, reflects the assets owned by
Investments. Respondent concludes that Investments’ assets are
therefore considered assets of Peoples for purposes of
calculating the numerator. We disagree. The numerator consists
of the “taxpayer’s average adjusted bases * * * of tax-exempt
obligations”, but Peoples has no adjusted bases in any of the
tax-exempt obligations purchased and owned by Investments.
Moreover, the statutes use the term “taxpayer” in the singular,
and well-established law treats Peoples and Investments as
separate taxpayers notwithstanding the fact that they join in the
filing of a consolidated return. See, e.g., Wegman’s Props.,
Inc. v. Commissioner, 78 T.C. 786, 789 (1982) (citing, inter
alia, Natl. Carbide Corp. v. Commissioner, 336 U.S. 422 (1949),
Interstate Transit Lines v. Commissioner, 319 U.S. 590 (1943),
Page: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Next
Last modified: March 27, 2008