Microsoft Corporation - Page 1

                                   115 T.C. No. 17                                    

                               UNITED STATES TAX COURT                                

                        MICROSOFT CORPORATION, Petitioner v.                          
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 16878-96.               Filed September 15, 2000.           

                    During 1990 and 1991, petitioner engaged its wholly               
               owned subsidiary, a foreign sales corporation, to act as               
               its agent for the international sales of standardized                  
               mass-marketed computer software products and computer                  
               software masters.  The standardized software products                  
               were copyrighted articles sold without a right to                      
               reproduce abroad.  The software masters were licensed to               
               related foreign subsidiaries and unrelated foreign                     
               equipment manufacturers with a right to reproduce abroad.              
                    In the notices of deficiency, respondent allowed the              
               deductions for the foreign sales corporation commissions               
               attributable to the standardized software products but                 
               denied them with respect to the export of the software                 
               masters.  The issue is whether the software masters                    

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