TEI DECRIES OFL RECAPTURE OTHER THAN THAT RELATING TO PASSIVE INTEREST INCOME.

TEI focuses first on the recapture of OFLs under regulation section 1.904(f)-13T(a)(2). TEI is concerned that the temporary regulations do not embody congressional intent with respect to the treatment of categories of income other than passive interest income. It claims that Congress was concerned with the mismatching of income and losses in a manner that would distort the foreign tax credit limitation. To address the issue, it created several categories or "baskets" of income, each with its own separate tax credit limitation. These separate baskets, says TEI, prevent the averaging of income from one category and the foreign taxes paid on it, with other types of income and the foreign taxes paid on the other income.

The temporary regulations do not, TEI maintains, implement congressional intent that OFLs should be recaptured from income that corresponds to the same limitation categories in which the OFL occurred. TEI argues that the general rule proposed in the regulations would preclude a pre-effective date (pre-1987) general limitation OFL from being recaptured against those categories of income in later years. In other words, new post-effective date specific limitation categories would be unavailable for recapture purposes even though the pre-effective date general limitation OFL may have been partially attributable to the types of income included in those separate limitation baskets.