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(b) Less: direct costs allocated to the contract under
section 1.451-3(d)(5)(i), Income Tax Regs.;
(c) Less: indirect costs allocated to the contract under
section 1.451-3(d)(5)(ii), Income Tax Regs.;
(d) Less: period costs incurred in the year of completion
allocated to the contract under section 1.451-3(d)(5)(iii),
Income Tax Regs.
In computing combined taxable income, petitioners did not
make a reduction for period costs incurred prior to the year of
contract completion that had been allocated to the contract in
years prior to completion under section 1.451-3(d)(5)(iii),
Income Tax Regs. Respondent determined that petitioners
incorrectly computed combined taxable income under the 23-percent
method. In particular, respondent determined that petitioners,
in the year of completion of each long-term contract, were
required to aggregate all period costs allocated to the contract,
including those deducted for prior years, and reduce combined
taxable income by the aggregated amount.
Respondent also determined that GENDYN was not entitled to
deduct commissions on sales involving two ships because they did
not qualify as export property under section 993. In the
alternative, if the ships are found to qualify as export property
under section 993, respondent determined that petitioners
incorrectly computed the commissions attributable to the ships,
in the same manner as described above.
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Last modified: May 25, 2011