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receipts by period costs that were deducted in computing prior
years' income taxes. Because they cannot deduct prior year
period costs in the years in issue, petitioners contend that
those period costs need not be utilized in computing CTI.
Conversely, respondent argues that, in accord with the
congressional intent as reflected in the legislative history, the
regulations require a taxpayer to account for all costs that
relate to export sales, including period costs deducted in prior
years. Respondent further argues that petitioners' accounting
method and any permissible variations therefrom do not control in
determining the statutory limitations for computing CTI. We
agree with respondent.
C. Whether Section 1.994-1(c)(6), Income Tax Regs., Is a
Reasonable Interpretation of the Statute
The regulation in controversy was intended to define the
statutory phrase "combined taxable income". That phrase is not
defined in the Internal Revenue Code. The regulation promulgated
by the Secretary is couched in broad terms, leaving room for the
parties to advance differing interpretations. In this regard,
petitioners have not questioned the validity of the regulation
under consideration. The regulatory formula for CTI is the
"excess of the gross receipts * * * over the total costs * * *
which relate to such gross receipts." Sec. 1.994-1(c)(6), Income
Tax Regs. The regulation also provides that the taxpayer may in
certain circumstances use the same method of accounting in
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