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the result here. We need not decide whether nonrecoverable costs
are significant because we decide the case by considering whether
the processing allowance is likely to exceed nonrecoverable
expenses under section 1.901-2(b)(4)(i)(B), Income Tax Regs. The
question under section 1.901-2(b)(4)(i)(B), Income Tax Regs, is
not whether the nonrecoverable expenses are significant; it is
whether the processing allowance is likely to approximate or
exceed them.8
5. Conclusion
Petitioner has shown that the processing allowance exceeded
nonrecoverable expenses both in the aggregate and for the vast
majority of OMT taxpayers. We conclude that the OMT processing
allowance was likely to approximate or exceed the nonrecoverable
expenses for the years in issue.
D. Respondent’s Contentions
Respondent contends that petitioner has not proven that the
OMT meets the requirements of section 1.901-2(b)(4)(i)(B), Income
Tax Regs., because, according to respondent, (1) this case is
governed by cases decided before the 1983 regulations applied,
8Similarly, we need not decide the parties’ dispute about
the concept of pit’s mouth value. Respondent contends that the
OMT’s use of pit’s mouth value shows that no nexus exists between
the amount of the processing allowance and nonrecoverable
expenses. Sec. 1.901-2((b)(4)(i)(B), Income Tax Regs., requires
us to consider whether the processing allowance approximates or
exceeds nonrecoverable expenses, not whether there is a nexus
between the two. See par. D-3, infra p. 33.
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