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for those taxpayers on the completed contract method who elected
to deduct period costs on an annual basis.
Accepting petitioners' argument would mean that taxpayers
using the completed contract method of accounting would calculate
their CTI in accordance with section 1.451-3, Income Tax Regs.,
as opposed to the regulations under sections 994 and 925. Under
section 1.861-8, Income Tax Regs., the costs to be allocated are
defined by the operative section which references that
regulation. Thus, we look to sections 994 and 925 and the
related regulations to determine which costs are allocable to
export sales for purposes of determining CTI, not the regulations
under section 451 as petitioners contend. Although period costs
are not required to be allocated to long-term contracts for cost-
deferral purposes under section 1.451-3(d)(5)(iii), Income Tax
Regs., sections 994(a) and 925(a) and the related regulations
require that all costs, including prior year period costs, be
accounted for in determining CTI.
Requiring petitioners to account for all period costs in
determining CTI is consistent with the completed contract method
of accounting. Allowing taxpayers to use their normal method of
accounting to compute CTI does not necessarily cede to the
accounting methodology the computation of the limitation of the
benefit to be generated by foreign exports. Petitioners must
account for all related costs, including period costs, of both
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