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Income Tax Regs., 44 Fed. Reg. 36074 (June 20, 1979). However,
this standard was dropped by the final regulations issued in 1983
and replaced with a “predominant character” test. The use of the
“predominant character” and “effectively compensates” tests in
section 1.901-2(b)(4), Income Tax Regs., is a change from the
history and purpose approach used in the cases decided before the
1983 regulations applied a factual, quantitative approach. This
change to a quantitative approach is also made by the provision
of the 1983 regulations which provides that the predominant
character of a foreign tax is that of an income tax in the U.S.
sense, if, among other things, the foreign tax “is likely to
reach net gain in the normal circumstances in which it applies”.
Sec. 1.901-2(a)(3)(i), Income Tax Regs.
We have considered the parties’ use of industry data in this
case. See par. C-1, supra p. 21. The record contains broadly
representative data which shows that the OMT processing allowance
effectively compensates for the disallowed deductions. See par.
C-3 and 4, supra pp. 22, 24. The U.S. Court of Claims in Inland
Steel Co. v. United States, 230 Ct. Cl. 314, 677 F.2d 72 (1982),
did not have industry-wide data to consider, and the Secretary
had not yet promulgated regulations using a quantitative
approach. The court in Inland Steel did not discuss the
relationship between nonrecoverable expenses and the OMT
processing allowance. Based on the Parsons OMT Report, Caland's
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