Boeing Co. v. United States, 537 U.S. 437, 24 (2003)

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460

BOEING CO. v. UNITED STATES

Thomas, J., dissenting

such determination conforms to any one of the following standards: (a) A recognized industry or trade usage, or (b) the 2-digit major groups (or any inferior classifications or combinations thereof, within a major group) of the Standard Industrial Classification [SIC] as prepared by the [Office of Management and Budget]." § 1.994-1(c)(7)(ii).

Section 1.994-1(c)(6)(iv), in turn, provides that, in connection with the computation of combined taxable income, "[t]he taxpayer's choice in accordance with [§ 1.994-1(c)(7)] as to the grouping of transactions shall be controlling, and costs deductible in a taxable year shall be allocated and apportioned to the items or classes of gross income of such taxable year resulting from such grouping." (Emphasis added.) Thus, in tandem, §§ 1.994-1(c)(6)(iv) and 1.994-1(c)(7) give a taxpayer the choice of allocating and apportioning costs to items or classes of gross income resulting from (1) case-by-case transactions, (2) products or product lines grouped together based on industry or trade usage, and (3) products or product lines grouped together based on 2-digit SIC codes or lesser included subgroups.

Although under § 1.991-1(c)(7) taxpayers are given three choices with respect to the proper grouping of export income (and the related allocation of expenses), and although § 1.994-1(c)(6)(iv) provides that the taxpayer's selection under § 1.991-1(c)(7) shall be "controlling," § 1.861-8(e)(3) takes away the very choices § 1.991-1 provides. Under § 1.861-8(e)(3), the taxpayer is told that R&D expenses may be allocated solely to items or classes of gross income resulting from products that are within the same 2-digit SIC group—which happens to be only one of the three options given under § 1.991-1(c)(7). In my view, the rule set forth in § 1.861-8(e)(3) entirely eviscerates the options given in § 1.991-1. Thus, despite the Court's efforts to show that the two regulations complement, rather than contradict, each

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