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Petitioner argues that having prescribed an allocation and
apportionment procedure that could either favor or disfavor a
taxpayer, depending on the circumstances, respondent should not
be permitted to selectively enforce the provision by challenging
its application for particular taxpayers. Petitioner
acknowledges that it obtains favorable results by applying Q&A 12
as written. The results produced by applying Q&A-12, however, do
not justify overriding the plain language of the regulation.
Petitioner contends that a plain and unambiguous provision may be
judicially overridden only if it produces grossly or patently
absurd results.
Respondent argues that petitioner's interpretation of Q&A-12
improperly limits the role of Q&A-1, contrary to clear
indications that Q&A-1 must be accorded a broad scope.
Respondent contends that petitioner's interpretation of Q&A-12 is
plainly at odds, not only with the express broad terms of Q&A-1,
but also with section 936. Q&A-1 is intended to state the
standards by which all expenses attributable to the possession
product must be allocated and apportioned regardless of the form
in which the possession product is sold to the third parties,
asserts respondent. Q&A-1 must be given a broad scope of
application in making allocations and apportionments of expenses
directly to the possession products in all situations where
expenses can be so apportioned using the methods provided in
section 1.861-8, Income Tax Regs. Respondent argues that in
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