- 23 -
are directly related to the production or sale of the
export property and a portion of the related person's
and the DISC's expenses not allocable to any specific
item of income, such portion to be determined on the
basis of the ratio of the combined gross income from
the export property to the total gross income of the
related person and the DISC. [Fn. ref. omitted;
emphasis added.]
H. Rept. 92-533, at 74 (1971), 1972-1 C.B. 498, 538; S. Rept. 92-
437, at 107 (1971), 1972-1 C.B. 559, 619. The regulation in
issue defines an ambiguous term and reflects congressional intent
as to the types of costs taxpayers must allocate to export sales
in calculating CTI. Thus, the regulatory definition of CTI in
section 1.994-1(c)(6), Income Tax Regs., is a reasonable
interpretation of section 994.
D. Interpretation of the Regulatory Definition of "Combined
Taxable Income"
Regulations that are valid exercises of the powers of the
Secretary have the force and effect of law. Sim-Air, USA, Ltd.
v. Commissioner, 98 T.C. 187, 198 (1992). The rules for
interpreting a valid regulation are similar to those governing
the interpretation of statutes. KCMC, Inc. v. FCC, 600 F.2d 546,
549 (5th Cir. 1979); Intel Corp. & Consol. Subs. v. Commissioner,
100 T.C. 616, 631 (1993), affd. 67 F.3d 1445 (9th Cir. 1995).
When construing a statute, or in this case a regulation, we are
to give effect to its plain and ordinary meaning unless to do so
would produce absurd results. Green v. Bock Laundry Mach. Co.,
490 U.S. 504, 509 (1989); Exxon Corp. v. Commissioner, 102 T.C.
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