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subsidiaries. H. Rept. 92-533, at 58 (1971), 1972-1 C.B. 498,
529; S. Rept. 92-437, at 90 (1971), 1972-1 C.B. 559, 609. A
domestic corporation that conducts its foreign operations through
a foreign subsidiary generally does not pay domestic Federal tax
on the income from those operations until the subsidiary's income
is repatriated to the domestic parent.
In 1984, Congress enacted the FSC provisions5 to replace and
cure some shortcomings in the DISC provisions. Deficit Reduction
Act of 1984, Pub. L. 98-369, sec. 801(a), 98 Stat. 494, 990; S.
Rept. 98-169, at 636 (1984). Under the FSC provisions, a
taxpayer may permanently avoid Federal income tax on a portion of
its profits on qualifying export sales.
The DISC and FSC provisions reallocate income generated by
export sales from the parent corporation to its DISC or FSC.
DISC’s are generally not subject to tax. Sec. 991. However, the
parent corporation is taxed on a specified portion of the DISC
profits as a deemed distribution. Sec. 995; L & F Intl. Sales
Corp. v. United States, 912 F.2d 377, 378 (9th Cir. 1990). The
remaining profits are tax-deferred until distributed
(repatriated) to the parent or until the corporation ceases to
qualify as a DISC. Secs. 995(a) and (b) and 996(a)(1). The FSC
provisions permanently exempt a portion of FSC profits from tax.
Sec. 923(a). The amount of the deferral or exemption is in
5 Secs. 921-927.
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