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combined taxable income. Instead, the NOPA, McDonell report, 30-
day letter, and RAR refer only to MS-Puerto Rico's failure to
qualify for the profit-split method election because of the lack of
a significant business presence in Puerto Rico. The NOPA and
accompanying McDonell report were issued approximately 4-1/2 months
before the execution of the restricted consent, and the 30-day
letter and accompanying RAR were issued on the same date as the
execution of the restricted consent.
Second, respondent's interpretation of the restricted consent
is inconsistent with the operation of section 936(h). Cf. Southern
v. Commissioner, 87 T.C. 49 (1986). If petitioner failed to
qualify to elect the profit-split method because of MS-Puerto
Rico's lack of a significant business presence in Puerto Rico, then
MS-Puerto Rico's taxable income would be computed under the rules
provided in section 936(h)(1)-(4). The combined taxable income of
the affiliated group is calculated under section
936(h)(5)(C)(ii)(II) only if petitioner qualified to elect (and
elected) the profit-split method. There is no language in the
restricted consent that suggests that the profit-split method is to
be allowed, thus permitting adjustments to the affiliated group's
combined taxable income.
Finally, if the parties intended the consent to have the
meaning respondent attributes to it, there would have been no need
to preface the consent with the language "The Service's proposed
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