440
Opinion of the Court
the briefs were Charles Rothfeld, David M. Gossett, Alan I. Horowitz, Joel V. Williamson, Wayne S. Kaplan, Roger J. Jones, Patricia Anne Yurchak, Marjorie M. Margolies, and John B. Magee.
Kent L. Jones argued the cause for the United States in both cases. With him on the brief were Solicitor General Olson, Assistant Attorney General O'Connor, Deputy Solicitor General Wallace, David English Carmack, and Frank P. Cihlar.†
Justice Stevens delivered the opinion of the Court. This suit concerns tax provisions enacted by Congress in 1971 to provide incentives for domestic manufacturers to increase their exports and in 1984 to limit and modify those incentives. The specific question presented involves the interpretation of a Treasury Regulation (26 CFR § 1.861- 8(e)(3) (1979)) promulgated in 1977 that governs the accounting for research and development (R&D) expenses under both statutory schemes.1 We shall explain the general outlines of the two statutes before we focus on that regulation.
The 1971 statute provided special tax treatment for export sales made by an American manufacturer through a subsidiary that qualified as a "domestic international sales corporation" (DISC).2 The DISC itself is not a taxpayer; a portion of its income is deemed to have been distributed to its shareholders, and the shareholders must pay taxes on that portion,
†Briefs of amici curiae urging reversal were filed for Caterpillar, Inc., et al. by C. David Swenson; for the National Foreign Trade Council, Inc., by Stephen D. Gardner; and for the Tax Executives Institute, Inc., by Fred F. Murray and Mary L. Fahey.
1 In 1996, the provisions of 26 CFR § 1.861-8 were amended, renumbered, and republished as 26 CFR § 1.861-17. See 26 CFR § 1.861-17 (2002); see also 60 Fed. Reg. 66503 (1995).
2 To qualify as a DISC, at least 95 percent of a corporation's gross receipts must arise from qualified export receipts. See 26 U. S. C. § 992(a)(1)(A). In addition, at least 95 percent of the corporation's assets must be export related. See § 992(a)(1)(B).
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