CORPORATION NOT ENTITLED TO DEDUCTIONS FOR PAYMENT ON GUARANTEE OF SUBSIDIARY'S DEBT.

                IN THE UNITED STATES COURT OF APPEALS

[1] On this appeal by a taxpayer, we affirm the tax court decision denying it deductions for foreign currency loss and interest. A taxpayer obligated to pay a debt in foreign currency may claim a foreign currency loss where there has been an adverse change in the exchange rate between the date of the obligation and the date the debt is paid, so that the payment requires more U.S. dollars than would have been required had the exchange rate been the same as the date the obligation was incurred. I.R.C. sections 988(b)(2), (c)(2)(A), and (c)(3)(A). An interest deduction is allowed only on interest paid on the taxpayer's indebtedness, not on the indebtedness of another. I.R.C. section 163(a); e.g., Nelson v. Commissioner, 281 F.2d 1, 5 (5th Cir. 1960); Borchert v. United States, 757 F.2d 209, 211 (8th Cir. 1985); Golder v. Commissioner, 604 F.2d 34, 35 (9th Cir. 1979).

[2] Taxpayer, Intergraph Corporation, is the parent of a group of affiliated corporations engaged in the business of designing, manufacturing, and marketing computer graphics and data base management systems. In May 1985, taxpayer formed a Japanese subsidiary, Nihon Intergraph K.K., to market and service its products. Nihon's principal place of business is Tokyo, Japan.

[3] For its banking services, taxpayer and its subsidiaries primarily relied upon Citicorp, Inc. and its banking and financial subsidiaries. Taxpayer's banking was done primarily through the Atlanta office of Citicorp North America, Inc., a subsidiary of Citicorp, Inc. Nihon's banking services were provided primarily by the Tokyo office of Citibank, N.A., another Citicorp, Inc. subsidiary ("Citibank Tokyo").

[4] In early June 1985, Nihon entered into an overdraft agreement with Citibank Tokyo that would provide Nihon with ready access to a source of yen to cover its operating expenses. Under the terms of the agreement, Nihon was permitted to overdraw its yen- denominated checking account by up to Y300 million (approximately $1.2 million at then-current exchange rates). The agreement reflected Nihon as the debtor and Citibank Tokyo as the creditor.

[5] Later that month, taxpayer entered into a "Continuing Guaranty" agreement with Citibank in which taxpayer guaranteed the payment at "maturity" of the obligations of Nihon, identified as the "Borrower." The agreement provided that in the event of default, including Nihon's non-payment of its obligations, "any or all of the Obligations [of Nihon Intergraph] shall, at [Citibank Tokyo's] option, become (for purposes of this guaranty) immediately due and payable without demand or notice."

[6] Over the next few years, Citibank Tokyo raised the ceiling on the overdraft amount available to Nihon, and the company's overdraft balance grew until at the end of December 1987, Nihon owed Citibank Tokyo Y823,943,385. At that time, taxpayer decided to eliminate the overdraft balance. Intergraph purchased the yen from Citibank at a cost of $6,484,169 and transferred it into Nihon's checking account at Citibank Tokyo, reducing the overdraft amount to zero. Nihon drew no more checks on the account and it was closed in April 1988.

[7] For the 1987 tax year, taxpayer claimed a $1,923,103 foreign currency loss deduction on the retirement of the overdraft amount, which amounts to the difference between the historical dollar value of the yen at the time the advances were made and the higher cost of the yen purchased with devalued dollars to retire the debt. Taxpayer also claimed an interest deduction for $520,432 on the amount of interest that had been charged to the overdraft account while the debt was outstanding. The Government determined that the overdraft was a loan to Nihon, not taxpayer, and disallowed the claimed foreign currency loss and interest deduction. Taxpayer challenged the Government's determination of a tax deficiency. After a trial, the Tax Court upheld the disallowance of the deductions, holding that taxpayer paid the debt as a guarantor, not the obligor.

[8] Taxpayer contends on appeal that the documents themselves make clear that Intergraph held primary liability. To the contrary, the boilerplate language upon which taxpayer relies to support this proposition creates no question as to the ultimate meaning or intent of the documents. The Overdraft Agreement lists Nihon as the only obligor on the overdraft amount. Intergraph is not even mentioned, much less included as a co-obligor. Intergraph signed only the Guaranty Agreement.

[9] Even if this be so, the taxpayer argues the Tax Court erred in failing to look beyond the "form" to the "substance" of the transaction.

[10] After oral argument, an extensive review of the briefs, the documents, and the authorities presented on appeal, we find no reversible error in either the decision of the Tax Court or the analysis of the facts and the law that led to that decision. We are of the opinion that the general rule that taxpayer is bound by the form of the transaction applies here. Commissioner v. National Alfalfa Dehydrating & Milling Co., 417 U.S. 134 (1974).

[11] Looking beyond the documents, the actions of the parties support the Tax Court's decision. For the period covering 1985 through November 1987, Nihon reported the overdraft amount as its debt obligation on its financial statements and its Japanese tax returns. Nihon reported to Japanese tax and regulatory authorities that the overdraft amount represented a loan from Citibank Tokyo to Nihon. Taxpayer reported on attachments to its 1985 and 1986 federal income tax returns and filings with the SEC that the overdraft amount was Nihon's debt obligation with taxpayer as guarantor. Although the parties dispute the standard of review governing this issue, it does not appear that the outcome would differ whether the court applies a clearly erroneous or de novo standard of review.

[12] We therefore affirm the judgment on the basis of the Tax Court opinion. Intergraph Corp. v. Commissioner, 106 T.C. 312 (1996).

[13] AFFIRMED.