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Regs., requires taxpayers to prove that the prior year period
costs definitely relate to gross income from a source other than
export sales, which petitioners have failed to do, to avoid
having to account for those costs in determining CTI.
The regulations under section 994, which incorporate section
1.861-8, Income Tax Regs., are consistent with the statutory
intent and legislative history. By requiring taxpayers to
account for all costs incurred to produce export property in
calculating CTI, the regulations limit the deferral or exclusion
of income to the actual income from foreign sales after
considering "total costs". In addition, the regulations do not
permit the exclusion of any particular costs, such as prior year
period costs, from the computation of CTI, unless the costs
definitely relate to a class of gross income other than export
sales. Sec. 1.994-1(c)(6), Income Tax Regs.; sec. 1.925(a)-
1T(c)(6)(iii), Temporary Income Tax Regs., supra.
Implicit in petitioners' position that they are following
the completed contract method is that the total costs are only
those claimed in the computation year. Petitioners do not
provide us with a logical or reasonable definition of "total
costs" and/or "related costs" that would harmonize with the
statutory limitation intended by Congress. Nor have petitioners
shown that the prior year period costs definitely relate to a
class of gross income other than export sales. It has not been
argued that the prior year period costs are unrelated to
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