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indebtedness incurred or
continued to purchase or
carry obligations
acquired after December
31, 1982, and before
August 8, 1986, the
interest on which is
exempt from taxes for the
taxable year, to the
extent that a deduction
would (but for this
paragraph or section
265(b)) be allowable with
respect to such interest
for such taxable year.
(ii) Determination of interest
allocable to indebtedness on
tax-exempt obligations.--Unless the
taxpayer (under regulations
prescribed by the Secretary)
establishes otherwise, the amount
determined under clause (i) shall
be an amount which bears the same
ratio to the aggregate amount
allowable (determined without
regard to this section and section
265(b)) to the taxpayer as a
deduction for interest for the
taxable year as--
(I) the taxpayer’s
average adjusted basis
(within the meaning of
section 1016) of
obligations described in
clause (i), bears to
(II) such average
adjusted basis for all
assets of the taxpayer.
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Last modified: March 27, 2008