- 26 -
"operative sections". Sec. 1.861-8(a)(1),(f)(1)(i)-(vi), Income
Tax Regs. Operative sections define the categories of income
between which taxpayers must allocate their deductions and gross
income.
Section 994 is an operative section wherein income is
grouped into two categories; i.e., income from export sales,
referred to as the statutory grouping, and all remaining gross
income, referred to as the residual grouping. St. Jude Medical,
Inc. v. Commissioner, 97 T.C. 457, 465 (1991), affd. in part and
revd. in part and remanded 34 F.3d 1394 (8th Cir. 1994); sec.
1.861-8(f)(1)(iii), Income Tax Regs. Under section 1.861-8,
Income Tax Regs., taxpayers must allocate their deductions to a
class of gross income and, then, if necessary to make the
determination required by the operative section, apportion the
deductions within the class of gross income between the statutory
and residual groupings. Sec. 1.861-8(a)(2), Income Tax Regs.
The apportionment must be accomplished in a manner that reflects
to a "reasonably close extent" the factual relationship between
the deduction and the income grouping. Sec. 1.861-8(c)(1),
Income Tax Regs.
Similar to the related costs definition in section 1.994-
1(c)(6)(iii), Income Tax Regs., section 1.861-8, Income Tax
Regs., requires allocation of deductions to definitely related
classes of gross income. Any deductions that do not definitely
relate to a class of gross income are ratably apportioned to all
Page: Previous 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 NextLast modified: May 25, 2011