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The regulations also provide that taxes either are or are
not to be regarded as income taxes in their entirety for all
persons subject to the taxes. See sec. 1.901-2(a), Income Tax
Regs. Respondent does not interpret this provision as requiring
that, in order to qualify as an income tax, a tax in question
must satisfy the predominant character test in its application to
all taxpayers. Rather, respondent interprets this provision as
requiring that in order to qualify as an income tax a tax must
satisfy the predominant character test in its application to a
substantial number of taxpayers.
On brief, respondent explains the net income test as
follows: PRT satisfies the net income test if its base is
computed by reducing gross receipts to permit recovery of
significant costs and expenses attributable to gross receipts,
or, if some of these costs and expenses are not deductible,
recovery of such costs and expenses computed under a method that
is likely to produce an amount approximating or exceeding the
nondeductible costs or expenses.
The parties have stipulated that PRT meets the realization
and gross receipts requirements of section 1.901-2(b)(2), (3),
Income Tax Regs., that PRT constitutes a compulsory payment
7(...continued)
provides allowances that effectively compensate for
nonrecovery of such significant costs or expenses, is
considered to permit recovery of such costs or
expenses. * * *
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