- 93 -
ing, labeling, or minor assembly" and therefore cannot constitute
the manufacture of sunglasses for purposes of section 954(d)(1).
Petitioners counter, inter alia, that the assembly operations
conducted by B&L Ireland and by B&L Hong Kong were not limited to
packaging, repackaging, labeling, or minor assembly because those
operations were substantial in nature and were generally
considered to constitute the manufacture of sunglasses.
We have serious reservations about respondent's argument
that the third sentence of section 1.954-3(a)(4)(iii), Income Tax
Regs., modifies the facts and circumstances test of that regula-
tion. We fail to see how an operation can satisfy that test
(i.e., be substantial in nature and be generally considered to
constitute the manufacture of a product) if it is limited to
packaging, repackaging, labeling, or minor assembly.
However, we need not decide whether respondent's argument
about the third sentence of section 1.954-3(a)(4)(iii), Income
Tax Regs., is correct because even if it were, we would nonethe-
less find that the respective sunglass assembly operations con-
ducted by B&L Ireland and B&L Hong Kong were not limited to
packaging, repackaging, labeling, or minor assembly. B&L Ireland
and B&L Hong Kong purchased sunglass parts that could not be sold
to the ultimate consumers no matter how they were packaged.
Through a series of operations, those companies assembled the
parts that they purchased into quality sunglasses ready for sale
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