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III. Conclusion
Accordingly, we find that section 1.936-6(b)(1) Q&A 12,
Income Tax Regs., (1) governs the computation of combined taxable
income with respect to sales of component concentrate produced by
CRI and sold by petitioner to unrelated third parties, (2)
requires U.S. affiliate expenses to be allocated and apportioned
to the component concentrate by applying the production cost
ratio to all expenses allocable and apportionable to the
integrated product, i.e., bottle and can soft drink, and (3)
requires U.S. affiliate expenses allocable and apportionable to
the integrated product, i.e., bottle and can soft drink, to be
determined under section 1.861-8, Income Tax Regs., as described
in section 1.936-6(b)(1), Q&A-1, Income Tax Regs.
We find further, on the basis of Bowater Inc. v.
Commissioner, 101 T.C. 207 (1993), that petitioner is entitled to
offset interest income against interest expense in determining
the amount of interest deduction to be allocated and apportioned
in computing combined taxable income under section 936 and
section 1.861-8(e)(2), Income Tax Regs.
To reflect the foregoing,
An appropriate order
will be issued granting
petitioner’s motion for
partial summary judgment.
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