Swallows Holding, Ltd. - Page 43

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          requirements in that it filed true and accurate Federal income              
          tax returns.  According to petitioner, section 882(c)(2) does not           
          require that the subject returns be filed timely, and the                   
          disputed regulations are invalid to the extent they impose such a           
          requirement.  Respondent argues that section 882(c)(2) includes a           
          clear timely filing requirement and that the disputed regulations           
          are a valid construction of that requirement.  According to                 
          respondent, petitioner may not deduct its expenses because it did           
          not file the subject returns timely.                                        
               We agree with petitioner.  To best understand our decision,            
          we first discuss the relevant provisions and developments in the            
          law which preceded the issuance of the disputed regulations.  We            
          then address our interpretation of the relevant text and the                
          standard by which we judge the disputed regulations to be                   
          invalid.                                                                    
          III.  Relevant Filing Requirements                                          
               Every corporation subject to Federal income tax must file a            
          Federal income tax return with respect to that tax.  See sec.               
          6012(a)(2).  The regulations interpret section 6012(a)(2) to                
          require that such a corporation file a Federal income tax return            
          even if it does not have any gross or taxable income for the                
          year.  See sec. 1.6012-2(a)(1), Income Tax Regs.  The regulations           
          interpret section 6012(a)(2) to apply to foreign corporations to            
          the extent set forth in section 1.6012-2(g)(1), Income Tax Regs.            






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