General Dynamics Corporation and Subsidiaries - Page 20

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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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