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substantial in nature under the facts and circumstances test
prescribed in section 1.954-3(a)(4)(iii), Income Tax Regs.40 We
disagree. Nothing in that test suggests that operations that do
not require substantial amounts of time to complete can never be
substantial in nature. To the contrary, all of the facts and
circumstances surrounding the operations at issue must be ex-
amined under that test in order to determine whether those opera-
tions are substantial in nature. See sec. 1.954-3(a)(4)(iii),
Income Tax Regs.
Moreover, respondent's contention that the actual assembly
of sunglasses by B&L Ireland and by B&L Hong Kong did not require
substantial amounts of time and therefore cannot be substantial
in nature ignores the range of the sunglass assembly operations
conducted by each of those corporations. Both B&L Ireland and
B&L Hong Kong performed the full range of activities necessary to
assemble sunglass parts into finished, quality sunglasses. Both
40 Records from B&L Hong Kong for the years at issue show that
the actual "Time for 1 unit assembled" ranged from a high of
approximately two minutes during 1983 to a low of approximately
one minute during 1987. Although no such records exist for B&L
Ireland, Dr. Philpott, a manufacturing engineer and expert relied
upon by respondent, estimated the time for assembly for (1)
metals at 1.77 minutes, (2) plastics at 1.84 minutes, and (3)
leathers (including applying the leather to the frames) at 4.06
minutes. Dr. Philpott made his estimates of the time required
for assembly of the various styles of sunglasses using a design
for assembly (DFA) analysis. DFA analysis utilizes a database of
time required to perform certain assembly-related tasks in order
to aid engineers in designing products in such a way that they
can be assembled most efficiently.
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