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The regulations do not provide that the processing allowance
must bear a predictable relationship to nonrecoverable expenses.
The regulations do provide that a foreign tax meets the net
income requirement if (among other requirements), judged by its
predominant character, the tax permits the recovery of
nonrecoverable expenses under a method that is likely to produce
an amount that approximates or is greater than the amount of the
nonrecoverable expenses. Sec. 1.901-2(b)(4)(i)(B), Income Tax
Regs. The effect of respondent’s position would be to exclude
from section 1.901-2(b)(4)(i)(B), Income Tax Regs., the words “or
is greater than”.
E. Conclusion
We conclude that the OMT processing allowance meets the
requirements of section 1.901-2(b)(4)(i)(B), Income Tax Regs.,
and that the OMT is creditable under section 901 for the years in
issue.
To reflect the foregoing and concessions,
Decision will be entered
under Rule 155.
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