Texasgulf Inc. and Subsidiaries, as Successor in Interest to Texasgulf Inc. and Subsidiaries - Page 21

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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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