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by a corporation’s employees or officers are to be taken into
account in determining whether the corporation manufactured or
produced a product in a possession, within the meaning of
sections 936(h)(5)(B)(ii) (final flush) and 954(d)(1)(A).
By the same token, petitioners’ focus on certain language in
section 1.954-3(a)(4), Income Tax Regs., overlooks the
regulation’s requirement that various actions have been done “by”
the corporation being evaluated. Also, because of our evaluation
in Spalding v. Commissioner, 66 T.C. 1017 (1976), we conclude
that the Code’s inventory provisions that petitioners rely on are
not good precedents for interpreting “manufactured or produced”
within the meaning of section 954(d)(1)(A).
In light of our rejection of both sides’ views of the law,
we conclude that proper evaluation of the merits of the instant
cases requires a fuller development of the facts and perhaps a
fuller exposition of the law consistent with the views we have
expressed in this opinion. Under these circumstances, we
conclude that petitioners have failed to carry their burden of
proving that they are entitled to summary judgment as to the
second prong.
4. Analysis
The dispute as to the second prong centers on the meaning of
the final flush language of section 936(h)(5)(B)(ii), requiring
that the product have been--
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