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Sec. 1.901-2(b)(4), Income Tax Regs. We next consider whether it
meets one of these tests.
C. Whether the OMT Meets the Net Income Requirement in Section
1.901-2(b)(4)(i)(B), Income Tax Regs.
Under one of the three net income tests, a tax meets the net
income requirement if, judged on the basis of its predominant
character, the base of the tax is computed by reducing gross
receipts to permit recovery of significant costs and expenses
under a method that is likely to produce an amount that
approximates or exceeds recovery of such significant costs or
expenses. Sec. 1.901-2(b)(4)(i)(B), Income Tax Regs. Because of
respondent's concessions, the OMT is creditable if it meets that
test.
1. Consideration of Representative OMT Data
Petitioner offered evidence intended to prove that the
processing allowance is likely to approximate or exceed
nonrecoverable expenses. Petitioner's evidence consisted of a
broadly representative study of OMT tax returns filed from 1968
to 1980. Petitioner's study showed that the processing allowance
far exceeded the nonrecoverable expenses both in the aggregate
for all returns studied and for a large majority of OMT returns.
5(...continued)
regulations." Isenbergh, "The Foreign Tax Credit: Royalties,
Subsidies, and Creditable Taxes", 39 Tax L. Rev. 227, 272 (1984).
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