General Dynamics Corporation and Subsidiaries - Page 18

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               The parent corporation either sells its product to the DISC            
          for resale in foreign markets, a buy-sell DISC, or pays a                   
          commission to the DISC for selling goods in foreign markets, a              
          commission DISC.  Brown-Forman Corp. v. Commissioner, 94 T.C.               
          919, 926 (1990), affd. 955 F.2d 1037 (6th Cir. 1992).  The DISC             
          in this case is a commission DISC.  Although the section 994(a)             
          pricing rules literally apply only to a buy-sell DISC, they have            
          been adopted for commission DISC’s pursuant to statutory                    
          authority granted to the Secretary.  Sec. 994(b)(1); sec. 1.994-            
          1(d)(2)(i), Income Tax Regs.; see sec. 925(b)(1); sec. 1.925(a)-            
          1T(d)(2), Temporary Income Tax Regs., 52 Fed. Reg. 6447 (Mar. 3,            
          1987).  In the case of a commission DISC, CTI is computed using             
          the gross receipts on the sale, lease, or rental of the property            
          on which the commissions arose.  Sec. 993(f).                               
               2.  Regulatory Requirement                                             
               CTI equals the excess of the DISC's gross receipts from                
          export sales over the total costs of the DISC and the parent that           
          relate to the DISC's gross receipts.  Sec. 1.994-1(c)(6), Income            
          Tax Regs.; see sec. 1.925(a)-1T(c)(6)(i), Temporary Income Tax              
          Regs., 52 Fed. Reg. 6446 (Mar. 3, 1987).  Section 1.994-1(c)(6),            
          Income Tax Regs., provides rules for determining which costs                
          relate to export sales:                                                     
               In determining the gross receipts of the DISC and the                  
               total costs of the DISC and related supplier which                     
               relate to such gross receipts, the following rules                     
               shall be applied:                                                      

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