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for which items of income and expense (including
depreciation) are taken into account. * * *
See sec. 1.925(a)-1T(c)(6)(iii)(A), Temporary Income Tax Regs.,
supra. Use of the taxpayer's accounting method is expressly
subject to subdivision (iii)'s definition of related costs that
taxpayers must take into account in calculating CTI. Sec. 1.994-
1(c)(6)(i), Income Tax Regs.; see sec. 1.925(a)-1T(c)(6)(iii)(D),
Temporary Income Tax Regs., supra. Thus, section 1.994-
1(c)(6)(iii), Income Tax Regs., defines the costs related and
allocable to petitioners' export sales; such costs are not
defined by petitioners' method of accounting.
In addition to their misplaced reliance on subdivision (i)
of section 1.994-1(c)(6), Income Tax Regs., petitioners also
assert that section 1.861-8, Income Tax Regs., supports their
position that they are not required to account for prior year
period costs. As stated above, Congress intended taxpayers
exporting through DISC’s to allocate their income and costs to
export sales pursuant to the requirements of section 1.861-8,
Income Tax Regs. Rather than address the substantive allocation
requirements of section 1.861-8, Income Tax Regs., as described
above, petitioners again concentrate their argument on their
accounting method. Petitioners argue that section 1.861-8,
Income Tax Regs., requires that the principles of annual
accounting apply to income and cost allocations. Petitioners
deducted the period costs in prior years in accordance with the
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