Reg. 1.267(a)-3(b) provides: "Except as provided in paragraph(c) of this section, section 267(a)(3) requires a taxpayer to usethe cash method of accounting with respect to the deduction ofamounts owed to a related foreign person. An amount that is owed toa related foreign person and that is otherwise deductible underChapter 1 thus may not be deducted by the taxpayer until suchamount is paid to the related foreign person.
F, a French corporation, loaned funds to its US sub. The US subis on the accrual method and in 2006 it deducted the interest thataccrued for the year but not paid until 2007. The IRS says that thereg. disallows the accrual and puts the US sub on the cash basisfor this item. F claims that the anti-discrimination articleprevents this action by the IRS. Would the anti-discriminationprovision apply? See Square D, 118 TC 299.
