Par. 2. In Sec. 1.904-5, paragraph (k)(1) is revised to read as follows:
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(k) Ordering rules--(1) In general. Income received or accrued by a related person to which the look-through rules apply is characterized before amounts included from, or paid or distributed by, that person and received or accrued by a related person. For purposes of determining the character of income received or accrued by a person from a related person if the payor or another related person also receives or accrues income from the recipient and the look-through rules apply to the income in all cases, the rules of paragraph (k)(2) of this section apply. Notwithstanding any other provision of this section, the principles of Sec. 1.954-1(c)(1)(i) will apply to any expense subject to Sec. 1.954-1(c)(1)(i).
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