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royalty income did not arise from transactions in export property
(i.e., the income arose from disqualified intangibles).
OPINION
A. The Statutes
In 1971, Congress enacted the domestic international sales
corporation (DISC) provisions (sections 991 through 997), see
Revenue Act of 1971, Pub. L. 92-178, sec. 501, 85 Stat. 497, 535,
to provide an export tax incentive to U.S. businesses and to improve
the country’s balance of payments, see S. Rept. 92-437, at 90
(1971), 1972-1 C.B. 559, 609. The DISC provisions attempted to
equalize tax treatment between U.S. companies that sold goods in
foreign markets regardless of whether the goods were made in the
United States. These provisions allowed domestic corporations to
defer taxes on a substantial portion of profits from export sales
(similar to the tax benefits available to corporations manufacturing
abroad through foreign subsidiaries). See H. Rept. 92-533, at 58
(1971), 1972-1 C.B. 498, 529; S. Rept. 92-437, supra at 90, 1972-1
C.B. at 609.
In 1984, Congress supplemented the DISC provisions with the
foreign sales corporation (FSC) provisions (sections 921 through
927), see Deficit Reduction Act of 1984, Pub. L. 98-369, sec. 801,
98 Stat. 494, 985, in order to comply with the General Agreement on
Tariffs and Trade, see S. Prt. 98-169 (Vol. I), at 635 (Comm. Print
1984). Under the FSC provisions, a taxpayer may permanently exclude
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