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936, the manner of computing combined taxable income and the
method by which expenses are to be allocated and apportioned
under the facts of the instant case.
There is no specific reference anywhere in section 936(h) to
component products or the computation of combined taxable income
with respect to component products. The computation of combined
taxable income with respect to component possession products
under the profit-split method is prescribed in Q&A-12. The
formulary apportionment method prescribed in Q&A-12 determines
the manner in which U.S. affiliate expenses are apportioned to
the gross income derived from covered sales of the component
possession product.
Section 1.936-6(b)(1), Income Tax Regs., was promulgated
pursuant to a specific statutory grant of authority under section
936(h)(7). Where the Commissioner acts under a specific grant of
authority, our primary inquiry is whether the regulation is not
contrary to the statute and is not arbitrary or capricious.
Rowan Cos. v. United States, 452 U.S. 247 (1981); Florida
Manufactured Housing Association, Inc. v. Cisneros, 53 F.3d 1565,
1572 (11th Cir. 1995); CWT Farms, Inc. v. Commissioner, 755 F.2d
790, 800 (11th Cir. 1985), affg. 79 T.C. 86 (1982).
Congress' delegation of rulemaking power was expressed in S.
Rept. 960, 70th Cong., 1st Sess. (1928), 1939-1 C.B. (Part 2)
409, 419, as follows:
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