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determining the taxpayer's expense, losses, and other deductions
that are properly allocated and apportioned to the gross income
derived from sales of a component possession product. Indeed,
there is no specific reference anywhere in section 936(h) to
component possession products or the computation of CTI with
respect to component possession products, asserts petitioner.
Section 936(h)(7) authorizes and directs the Secretary to
prescribe such regulations as may be necessary or appropriate to
carry out the purposes of section 936(h), and, according to
petitioner, Q&A-12 is the provision the Secretary chose to
prescribe to fill the statutory gap. Thus, petitioner argues,
respondent chose to (1) make Q&A-12 the exclusive procedure for
computing CTI with respect to component possession products and
(2) chose to use a formulary apportionment method in order to
make such computation. Undoubtedly, other procedures for
computing CTI for component possession products could have been
prescribed, and other procedures might be thought by some to
produce "better" results, argues petitioner. The procedures
adopted in Q&A-12 were chosen, however, and are fully consistent
with the language and purpose of section 936(h)(5)(C)(ii)(II).5
5Other procedures were recommended to the Treasury and IRS,
and another procedure has been proposed by the Commissioner for
taxable years beginning after 1993. Under the proposed
amendment, CTI for a component possession product is determined
by applying the PCR to the CTI for the integrated product
containing the component possession product. See Notice of
Proposed Rulemaking, 59 Fed. Reg. 1690 (Jan. 12, 1994).
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