DEPARTMENT OF THE TREASURY TECHNICAL EXPLANATION OF THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF IRELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS（九） Paragraph 2 　　Paragraph 2 has six subparagraphs, each of which describes a category of residents that constitute qualified persons and thus are entitled to all benefits of the Convention. Individuals -- Subparagraph 2(a) 　　Subparagraph a) provides that individual residents of a Contracting State will be entitled to all treaty benefits. If such an individual receives income as a nominee on behalf of a third country resident, benefits may be denied under the respective articles of the Convention by the requirement that the beneficial owner of the income be a resident of a Contracting State. Qualified Governmental Entities -- Subparagraph 2(b) 　　Subparagraph b) provides that qualified governmental entities, as defined in subparagraph 1(j) of Article 3 (Definitions), also will be entitled to all benefits of the Convention. As described in Article 3, in addition to federal, state and local governments, the term "qualified governmental entity" encompasses certain government-owned corporations and other entities, and certain pension trusts or funds that administer pension benefits described in Article 19 (Government Service). Ownership and Base Erosion -- Subparagraph 2(c) 　　Subparagraph 2(c) provides a two-part test, the so-called ownership and base erosion test. This test applies to any form of legal entity that is a resident of a Contracting State. Both prongs or the test must be satisfied for the resident to be entitled to benefits under subparagraph 2(c). The ownership prong of the test, under clause (i), requires that at least 50 percent of the beneficial interest in the person (or, in the case of a company, at least 50 percent of the aggregate vote and value of the company's shares) be owned by persons who are themselves entitled to benefits under the other tests of paragraph 2 (i.e., subparagraphs (a), (b), (d), (e), or (f)), or who are residents or citizens of the United States. 　　Although subparagraph 2(c) does not specify that only qualified persons described in other subparagraphs can satisfy the ownership test, this in fact is required by the rule regarding chains of ownership. Ownership by qualified persons may be indirect, but in cases of a chain of ownership, the ownership test must be satisfied by the last owners in the chain. In general, this requires that intermediate owners be disregarded and that ownership be traced to a person that is entitled to benefits without reference to its owners (such as a publicly traded company under subparagraph 2(e)). Thus, owners that satisfy the test under subparagraph 2(c)(i) include qualified persons described in subparagraphs 2(a), (b), (d), (e), and (f), because such persons are entitled to benefits without reference to their ownership (if any), or residents or citizens of the United States, because neither the United States nor Ireland is concerned about treaty-shopping through such persons. Ownership traced to any other person would not count towards satisfying the subparagraph 2(c)(i) ownership threshold. 　　Trusts may be entitled to benefits under this provision if they are treated as residents under Article 4 (Residence) and they otherwise satisfy the requirements of this subparagraph. For purposes of this subparagraph, the beneficial interests in a trust will be considered to be owned by its beneficiaries in proportion to each beneficiary's actuarial interest in the trust. The interest of a remainder beneficiary will be equal to 100 percent less the aggregate percentages held by income beneficiaries. A beneficiary's interest in a trust will not be considered to be owned by a person entitled to benefits under the provisions of paragraph 2 if it is not possible to determine the beneficiary's actuarial interest. Consequently, if it is not possible to determine the actuarial interest of any beneficiaries in a trust, the ownership test under clause (i) cannot be satisfied, unless all beneficiaries are persons entitled to benefits under the other subparagraphs of paragraph 2 or are residents or citizens of the United States. 　　The base erosion prong of the test under subparagraph 2(c) requires that amounts paid or accrued by a person during a taxable year, and deductible for tax purposes in that person's State of residence, to persons not entitled to benefits under paragraph 2 and not residents or citizens of the United States not constitute more than 50 percent of the person's gross income for that taxable year. To the extent they are deductible from the taxable base, trust distributions would be considered deductible payments. Depreciation and amortization deductions, which do not represent payments or accruals to other persons, are disregarded for this purpose. Deductible payments do not include arm's length payments in the ordinary course of business for services or tangible property or with respect to financial obligations to banks that are residents of either Contracting State or that have a permanent establishment in either Contracting State to which the payment is attributable. The exclusion of payments to banks is in recognition of the fact that a significant portion of the domestic banking market in Ireland has been accounted for by subsidiaries or branches of foreign banks. The U.S. Model also excludes from deductible payments those payments made to, and attributable to, a permanent establishment in a Contracting State. 　　The term "gross income" is not defined in this Convention. Thus, in accordance with paragraph 2 of Article 3 (General Definitions), in determining whether a person deriving income from United States sources is entitled to the benefits of the Convention, the United States will ascribe the meaning to the term that it has in the United States. In such cases, "gross income" will be defined as gross receipts less cost of goods sold. Subparagraph 8(a) allows the taxpayer to use an averaging rule, by providing that "gross income" for purposes of paragraph 2(c) means gross income for the preceding taxable year or the average of the annual amounts of gross income for the four taxable years preceding the current taxable year, whichever is greater. Publicly Traded Persons -- Subparagraph 2(d) 　　Subparagraph d) applies to two categories of legal entities that may not be companies under the laws of one of the Contracting States: publicly traded entities and entities owned either by publicly traded companies or by publicly traded entities that are not individuals or companies. Clause i) of subparagraph 2(d) provides that a person other than an individual or a company will be entitled to all the benefits of the Convention if the principal class of "units" in that person is listed on a "recognized stock exchange" located in either State and is substantially and regularly traded. The term "units" is defined in subparagraph 8(c). The term "recognized stock exchange" is defined in subparagraph 8(b). 　　Subparagraph d) applies generally to trusts the shares of ownership in which are publicly traded and to trusts that are owned by publicly traded entities. From the U.S. perspective, the provision relating to publicly traded trusts is redundant, since the United States would generally consider such trusts to be corporations that are covered by the parallel provision under subparagraph 2(e). 　　The term "principal class of units" is not defined in the Convention. It is understood that it will be interpreted in accordance with the definition of "principal class of shares" in subparagraph 8(d). The meaning of the term "substantially and regularly traded" in respect of the units in a class of units is defined in paragraph 9 of the Protocol to this Convention. The substantial and regular trading requirement can be met by trading on any recognized stock exchange. Trading on one or more recognized stock exchanges may be aggregated for purposes of this requirement.Thus, a U.S. entity could satisfy the substantially and regularly traded requirement through trading, in whole or in part, on a recognized stock exchange located in Ireland. Authorized but unissued units are not considered for purposes of this test. 　　Clause (ii) of subparagraph 2(d) provides a test under which certain entities are entitled to the benefits of the Convention if the direct or indirect owners of at least 50 percent of the beneficial interests in the entity are entities that satisfy the publicly traded test of subparagraph 2(d)(i) or 2(e)(i). Thus, for example, an Irish resident trust, all the shares of ownership in which are owned by a second Irish resident trust, would qualify for benefits under the Convention if the principal class of units of the second Irish trust were listed on the Irish Stock Exchange and substantially and regularly traded on the London stock exchange. However, the first Irish trust would not qualify for benefits under subparagraph 2(d)(ii) if the publicly traded second trust were a resident of the United Kingdom, not of the United States or Ireland. The requirement that the trust described in clause 2(d)(ii) be owned by a resident of one of the Contracting States is confirmed in paragraph 4 of the diplomatic notes. Publicly Traded Companies -- Subparagraph 2(e) 　　Subparagraph e) applies to two categories of companies: publicly traded companies and subsidiaries of publicly traded companies. Clause i) of subparagraph 2(e) provides that a company will be entitled to all the benefits of the Convention if the principal class of its shares is substantially and regularly traded on one or more recognized stock exchanges. The term "recognized stock exchange" is defined in subparagraph 8(b) as 　　(i) the NASDAQ System owned by the National Association of Securities Dealers, and any stock exchange registered with the Securities and Exchange Commission as a national securities exchange for purposes of the Securities Exchange Act of 1934; 　　(ii) the Irish Stock Exchange and the stock exchanges of Amsterdam, Brussels, Frankfurt, Hamburg, London, Madrid, Milan, Paris, Stockholm, Sydney, Tokyo, Vienna and Zurich; and 　　(iii) any other stock exchange agreed upon by the competent authorities of the Contracting States. 　　The term "principal class of shares" is defined in subparagraph 8(d). If a company has only one class of shares, it is only necessary to consider whether the shares of that class are substantially and regularly traded on a recognized stock exchange. If the company has more than one class of shares, it is necessary as an initial matter to determine whether one of the classes accounts for more than half of the voting power and value of the company. If so, then only those shares are considered for purposes of the substantial and regular trading requirement. If no single class of shares accounts for more than half of the company's voting power and value, it is necessary to identify a group of two or more classes of the company's shares that account for more than half of the company's voting power and value, and then to determine whether each class of shares in this group satisfies the regular trading requirement. Although in a particular case involving a company with several classes of shares it is conceivable that more than one group of classes could be identified that account for more than 50% of the shares, it is only necessary for one such group to satisfy the requirements of this subparagraph in order for the company to be entitled to benefits. Benefits would not be denied to the company even if a second, non-qualifying, group of shares with more than half of the company's voting power and value could be identified. 　　The principal class of shares must always include any disproportionate class of shares, as defined in subparagraph 8(d)(ii). A disproportionate class of shares means a class of shares in a company resident in one of the States that entitles the shareholder to a disproportionately higher share in the earnings generated in the other State by particular assets or activities of the company. Such participation may take any form, including (but not limited to) dividends and redemption payments. A disproportionate class of shares would include so-called alphabet stock that entitles the holder to earnings in the State produced by a particular division of the company. 　　The following examples illustrate the application of this paragraph. Example 1. 　　EIRECo is a corporation resident in Ireland. EIRECo has two classes of shares: 　　Common and Preferred. The Common shares are listed on the Irish Stock Exchange and are substantially and regularly traded. The Preferred shares have no voting rights and are entitled to receive dividends equal in amount to interest payments that EIRECo receives from unrelated borrowers in the United States. 　　The Common shares account for more than 50 percent of the value of EIRECo and for 100 percent of the voting power. Because the owner of the Preferred shares is entitled to receive payments corresponding to the U.S. source interest income earned by EIRECo, the Preferred shares are considered to be a disproportionate class of shares. Pursuant to subparagraph 8(d), the principal class of shares of EIRECo includes the Common and Preferred shares. Example 2. 　　EIRECo is a corporation resident in Ireland. EIRECo has two classes of shares: 　　Common and Preferred. The Common shares are listed on the Irish Stock Exchange and are substantially and regularly traded. The Preferred shares have no voting rights and are entitled to receive dividends equal in amount to the income earned by EIRECo from selling widgets in Ireland. Because the Preferred shares do not entitle the owner to receive dividends or other payments corresponding to U.S.-source income received by EIRECo, the Preferred shares are not considered a disproportionate class of shares for purposes of subparagraph 8(d). 　　Paragraph 9 of the Protocol provides that a class of shares will be considered to be "substantially and regularly traded" on one or more recognized stock exchanges if trades in such class are effected on one or more such exchanges in other than de minimis quantities during every quarter of the taxable year for which benefits of the Convention are claimed and the aggregate number of shares of that class traded on such exchanges during the previous year is at least 6 percent of the average number of shares or units outstanding in that class during such previous year. The aggregate trading requirement is deemed to be met in the first year that a company is listed on a recognized stock exchange. In addition, Subparagraph 9(a)(ii) of the Protocol provides that an Irish Building Society will be deemed to satisfy the test under subparagraph 2(e) and hence is entitled to the benefits of the Convention. 　　The substantial and regular trading requirement can be met by trading on any recognized stock exchange. Trading on one or more recognized stock exchanges may be aggregated for purposes of this requirement. Thus, a U.S. company could satisfy the substantially and regularly traded requirement through trading, in whole or in part, on a recognized stock exchange located in Ireland or certain third countries. Authorized but unissued shares are not considered for purposes of this test. 　　Clause (ii) of subparagraph 2(e) provides a test under which a company resident in a Contracting State is entitled to the benefits of the Convention if the direct and indirect owners of at least 50 percent of the aggregate vote and value of the company's shares are publicly traded companies described in subparagraph 2(e)(i), qualified governmental entities, or companies more than 50 percent of the aggregate vote and value of which is owned by qualified governmental entities. Thus, for example, an Irish resident company, all the shares of ownership in which are owned by another Irish resident company, would qualify for benefits under the Convention if the principal class of shares of the Irish parent company were listed on the Irish Stock Exchange and substantially and regularly traded on the London stock exchange. However, the Irish company would not qualify for benefits under subparagraph 2(e)(ii) if the publicly traded parent company were a resident of the United Kingdom, not of the United States or Ireland. The requirement that the company described in clause 2(e)(ii) be owned by a resident of one of the Contracting States is confirmed in paragraph 4 of the diplomatic notes. Tax Exempt Organizations -- Subparagraph 2(f) 　　Subparagraph 2(f) provides that the tax exempt organizations described in subparagraph 1(c) of Article 4 (Residence) will be qualified persons if more than half of the beneficiaries, members or participants of the organization are themselves entitled to treaty benefits under paragraph 2. Entities that may qualify under this subparagraph are those entities that generally are exempt from tax in their State of residence and that are organized and operated exclusively to administer and provide retirement and employee benefits or to fulfill religious, educational, scientific and other charitable purposes. For purposes of this provision, the term "beneficiaries" should be understood to refer to the persons receiving benefits from the organization. 　　The provisions of paragraph 2 are intended to be self-executing. Unlike the provisions of paragraph 6, discussed below, claiming benefits under paragraph 2 does not require advance competent authority ruling or approval. The tax authorities may, of course, on review, determine that the taxpayer has improperly interpreted the paragraph and is not entitled to the benefits claimed. Paragraph 3 　　Paragraph 3 sets forth a test under which a resident of a Contracting State that is not generally entitled to benefits of the Convention under paragraph 2 may receive treaty benefits with respect to certain items of income that are connected to an active trade or business conducted in its State of residence. 　　Subparagraph 3(a) sets forth a three-pronged test that must be satisfied in order for a　resident of a Contracting State to be entitled to the benefits of the Convention with respect to a　particular item of income. First, the resident must be engaged in the active conduct of a trade of business in its State of residence. Second, the income derived from the other State must be derived in connection with, or be incidental to, that trade or business. Third, if the resident has an ownership interest in the activity in the other State that generated the income, then the trade or business conducted by the resident in its State of residence must be substantial in relation to the activity in the other State that generated the item of income. 　　These determinations are made separately for each item of income derived from the other State. It therefore is possible that a person would be entitled to the benefits of the Convention with respect to one item of income but not with respect to another. If a resident of a Contracting State is entitled to treaty benefits with respect to a particular item of income under paragraph 3, the resident is entitled to all benefits of the Convention insofar as they affect the taxation of that item of income in the other State. Set forth below is a discussion of each of the three prongs of the test under paragraph 3. Trade or Business -- Subparagraph 3(a)(i) 　　The term "trade or business" is not defined in the Convention. Pursuant to paragraph 2 of Article 3 (General Definitions), when determining whether a resident of the other State is entitled to the benefits of the Convention under paragraph 3 with respect to income derived from U.S.sources, the United States will ascribe to this term the meaning that it has under the law of the United States. Accordingly, the United States competent authority will refer to the regulations issued under section 367(a) for the definition of the term "trade or business." These regulations are consistent with the requirement under subparagraph 9(b)(i) of the Protocol, which states that this determination will be based on all the relevant facts and circumstances. In general, a trade or business will be considered to be a specific unified group of activities that constitute or could constitute an independent economic enterprise carried on for profit. Furthermore, a corporation generally will be considered to carry on a trade or business only if the officers and employees of the corporation conduct substantial managerial and operational activities. See, Code section 367(a)(3) and the regulations thereunder. 　　Notwithstanding this general definition of trade or business, subparagraph 3(a)(i) also provides that the business of making or managing investments, when part of banking or insurance activities conducted by a bank or insurance company acting in the ordinary course of its business, will be considered to be a trade or business. Conversely, such activities conducted by a person other than a bank or insurance company will not be considered to be the conduct of an active trade or business, nor would they be considered to be the conduct of an active trade or business if conducted by a banking or insurance company but not as part of the company's ordinary banking or insurance business. Subparagraphs 9(b)(i)(A) and (B) of the Protocol provide that a bank will be considered to be engaged in the active conduct of a banking business if it regularly accepts deposits from the public or makes loans to the public, and an insurance company will be considered to be engaged in the active conduct of an insurance business if its gross income consists primarily of insurance or reinsurance premiums and the investment income attributable to such premiums. Banks that, at the time of the signature of the Convention, were licensed by the banking authorities of a Contracting State to engage in a banking business are deemed to satisfy the active conduct requirement. 　　Because a headquarters operation is in the business of managing investments, a company that functions solely as a headquarters company will not be considered to be engaged in an active trade or business for purposes of paragraph 3. 　　Subparagraph 9(b)(ii) of the Protocol to the Convention provides that in determining whether a person is engaged in the active conduct of a trade or business in a Contracting State, activities conducted by a partnership in which that person is a partner and activities conducted by persons "connected" to such person will be deemed to be conducted by such person. Persons are deemed to be connected to each other if one owns at least 50 percent of the other or at least 50 percent of each is owned by another person. In addition, persons are connected if one controls the other or they are under common control. Derived in Connection With Requirement - Subparagraphs 3(a)(ii) and (b)(i) 　　Subparagraph 3(b)(i) provides that income is derived in connection with a trade or business if the income-producing activity in the other State is a line of business that forms a part of or is complementary to the trade or business conducted in the State of residence by the income recipient. Although no definition of the terms "forms a part of" or "complementary" is set forth in the Convention, it is intended that a business activity generally will be considered to "form a part of" a business activity conducted in the other State if the two activities involve the design, manufacture or sale of the same products or type of products, or the provision of similar services.In order for two activities to be considered to be "complementary," the activities need not relate to the same types of products or services, but they should be part of the same overall industry and be related in the sense that the success or failure of one activity will tend to result in success or failure for the other. In cases in which more than one trade or business is conducted in the other State and only one of the trades or businesses forms a part of or is complementary to a trade or business conducted in the State of residence, it is necessary to identify the trade or business to which an item of income is attributable. Royalties generally will be considered to bederived in connection with the trade or business to which the underlying intangible property is attributable. Dividends will be deemed to be derived first out of earnings and profits of the treaty-benefited trade or business, and then out of other earnings and profits. Interest income may be allocated under any reasonable method consistently applied. A method that conforms to U.S. principles for expense allocation will be considered a reasonable method. The following examples illustrate the application of subparagraph 3(b)(i). Example 1. 　　EIRECo is a corporation resident in Ireland. EIRECo is engaged in an active manufacturing business in Ireland. EIRECo owns 100 percent of the shares of USCo, a corporation resident in the United States. USCo distributes EIRECo products in the United States. Since the business activities conducted by the two corporations involve the same products, USCo's distribution business is considered to form a part of EIRECo's manufacturing business within the meaning of subparagraph 3(b)(i). Example 2. The facts are the same as in Example 1, except that EIRECo does not manufacture. Rather, EIRECo operates a large research and development facility in Ireland that licenses intellectual property to affiliates worldwide, including USCo. USCo and other EIRECo affiliates then manufacture and market the EIRECo-designed products in their respective markets. Since the activities conducted by USCo and EIRECo involve the same product lines, these activities are considered to form a part of the same trade or business. Example 3. Americair is a corporation resident in the United States that operates an international airline. FSub is a wholly owned subsidiary of Americair resident in Ireland. FSub operates a chain of hotels in Ireland that are located near airports served by Americair flights. Americair frequently sells tour packages that include air travel to Ireland and lodging at FSub hotels. Although both companies are engaged in the active conduct of a trade or business, the businesses of operating a chain of hotels and operating an airline are distinct trades or businesses. Therefore FSub's business does not form a part of Americair's business. However, FSub's business is considered to be complementary to Americair's business because they are part of the same overall industry (travel) and the links between their operations tend to make them interdependent. Example 4. The facts are the same as in Example 3, except that FSub owns an office building in Ireland instead of a hotel chain. No part of Americair's business is conducted through the office building. FSub's business is not considered to form a part of or to be complementary to Americair's business. They are engaged in distinct trades or businesses in separate industries, and there is no economic dependence between the two operations. Example 5. 　　USFlower is a corporation resident in the United States. USFlower produces and sells flowers in the United States and other countries. USFlower owns all the shares of ForHolding, a corporation resident in Ireland. ForHolding is a holding company that is not engaged in a trade or business. ForHolding owns all the shares of three corporations that are resident in Ireland: ForFlower, ForLawn, and ForFish. ForFlower distributes USFlower flowers under the USFlower trademark in Ireland. ForLawn markets a line of lawn care products in Ireland under the USFlower trademark. In addition to being sold under the same trademark, ForLawn and ForFlower products are sold in the same stores and sales of each company's products tend to generate increased sales of the other's products. ForFish imports fish from the United States and distributes it to fish wholesalers in Ireland. For purposes of paragraph 3, the business of ForFlower forms a part of the business of USFlower, the business of ForLawn is complementary to the business of USFlower, and the business of ForFish is neither part of nor complementary to that of USFlower. 　　Finally, subparagraph 3(a)(ii) provides that a resident in one of the States also will be entitled to the benefits of the Convention with respect to income derived from the other State if the income is "incidental" to the trade or business conducted in the recipient's State of residence.Income derived from a State will be considered incidental to a trade or business conducted in the other State if the production of such income facilitates the conduct of the trade or business in the other State. An example of incidental income is the temporary investment of working capital derived from a trade or business. Substantiality -- Subparagraphs 3(a)(ii) and (b)(ii) 　　As indicated above, subparagraph 3(a)(ii) provides that income that a resident of a State derives from the other State will be entitled to the benefits of the Convention under paragraph 3 only if the income is derived in connection with a trade or business conducted in the recipient's State of residence and, where such resident has an ownership interest in the income-producing activity in the other State, that trade or business is "substantial" in relation to the incomeproducing activity in the other State. Subparagraph 3(b)(ii) provides that whether the trade or business of the income recipient is substantial will be determined based on all the facts and circumstances. These circumstances generally would include the relative scale of the activities conducted in the two States and the relative contributions made to the conduct of the trade or businesses in the two States. 　　In addition to this subjective rule, subparagraph 3(b)(ii) provides a safe harbor under which the trade or business of the income recipient may be deemed to be substantial based on three ratios that compare the size of the recipient's activities to those conducted in the other State. The three ratios compare: (i) the value of the assets in the recipient's State to the assets used in the other State; (ii) the gross income derived in the recipient's State to the gross income derived in the other State; and (iii) the payroll expense in the recipient's State to the payroll expense in the other State. The average of the three ratios with respect to the preceding taxable year must exceed 10 percent, and each individual ratio must exceed 7.5 percent. 　　If any individual ratio does not exceed 7.5 percent for the preceding taxable year, the average of the three preceding taxable years may be used instead. Thus, if the taxable year is 1998, the preceding year is 1997. If one of the ratios for 1997 is not greater than 7.5 percent, the average ratio for 1995, 1996, and 1997 with respect to that item may be used. 　　The term "value" also is not defined in the Convention. Therefore, this term also will be defined under U.S. law for purposes of determining whether a person deriving income from United States sources is entitled to the benefits of the Convention. In such cases, "value" generally will be defined using the method used by the taxpayer in keeping its books for purposes of financial reporting in its country of residence. See, Treas. Reg. §1.884-5(e)(3)(ii)(A). Only items actually located or incurred in the two Contracting States are included in the computation of the ratios. If the person from whom the income in the other State is derived is not wholly owned (directly or indirectly) by the recipient then the items included in the computation with respect to such person must be reduced by a percentage equal to the percentage ownership held by persons other than the recipient. For instance, if an Irish corporation derives income from a U.S. corporation in which it holds 80 percent of the shares, for purposes of subparagraph 3(b)(ii) only 80 percent of the assets, payroll and gross income of the U.S. company would be taken into account. 　　If the recipient has no ownership interest in the person from whom the income is derived, then pursuant to subparagraph 3(a)(ii) the substantiality test does not apply. Of course, the other two prongs of the test under paragraph 3 would have to be satisfied in order for the recipient of the item of income to receive treaty benefits with respect to that income. For example, assume that a resident of a Ireland is in the business of banking in Ireland. The bank loans money to unrelated residents of the United States. The bank would not be subject to the substantiality requirement of subparagraph 3(a)(ii) with respect to interest paid on the loans because it has no ownership interest in the payors. 　　The provisions of paragraph 3 are intended to be self-executing. Unlike the provisions of paragraph 6, discussed below, claiming benefits under paragraph 3 does not require advance competent authority ruling or approval. The tax authorities may, of course, on review, determine that the taxpayer has improperly interpreted the paragraph and is not entitled to the benefits claimed.