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of property produced or property acquired for resale”, and then
sets forth a reasonableness standard. (Emphasis added.) As
found above, section 1.263A-1(f)(4), Income Tax Regs., applies
only to the second level allocation. Similarly, section 1.451-
3(d)(8)(iv), Income Tax Regs., requires that indirect costs
previously allocated to long-term contracts under paragraph
(d)(6)(ii) shall be allocated to a particular long-term contract
using a specific identification method, a burden rate method, “or
similar formulas, so long as the method employed * * * reasonably
allocates indirect costs”. However, unlike section 1.263A-
1(f)(4), Income Tax Regs., section 1.451-3(d)(8)(iv), Income Tax
Regs., does not provide a reasonableness standard.
What respondent asks the Court to do is take the
reasonableness standard from the second level allocation under
the section 263A regulations and apply it to the first level
allocation under the regulations of sections 263A and 460. While
the regulations under both sections have a parallel structure,
such structure works against respondent’s interpretation. The
regulations clearly separate the two levels of allocations, and
as found above, the reasonableness standard of section 1.263A-
1(f)(4), Income Tax Regs., applies only to the second level
allocation. The structure of the regulations supports limiting
the reasonableness standard of section 1.263A-1(f)(4), Income Tax
Regs., to the second level allocation only.
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