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petitioners' export sales. In addition, petitioners previously
allocated the prior year period costs to particular export sales
contracts as they accrued. Thus, we find that the regulatory
definition of related costs includes prior year period costs that
have previously been deducted. Petitioners must account for both
current and prior year period costs in determining their CTI.
E. The Effect of the Taxpayer's Method of Accounting on the
Computation of Combined Taxable Income
Petitioners also argue that they are properly applying their
method of accounting by not reducing CTI by prior year period
costs. Rather than suggesting an alternative definition of total
costs that excludes prior year period costs, petitioners rely on
subdivision (i) of section 1.994-1(c)(6), Income Tax Regs. That
subdivision permits taxpayers to use their normal method of
accounting in computing CTI. Petitioners interpret that
regulation to require taxpayers to compute CTI in accordance with
their method of accounting. Accordingly, petitioners contend
that whether costs related to export sales, as defined in section
1.994-1(c)(6)(iii), Income Tax Regs., are allocable to those
export sales for purposes of determining CTI depends on their
accounting method.
Section 1.994-1(c)(6)(i), Income Tax Regs., provides:
(i) Subject to subdivisions (ii) through (v) of
this subparagraph, the taxpayer's method of accounting
used in computing taxable income will be accepted for
purposes of determining amounts and the taxable year
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