Taxation and State Taxation -- 2003
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Boeing Co. v. United States
(U.S. Supreme Court)
Federal taxation
The Supreme Court held 3/4/03, in a 7-to-2 decision, that Treasury Regulation § 1-861-8(e)(3) is a proper exercise of the IRS’s authority to interpret Internal Revenue Code § 861. The regulation requires, for purposes of computing the tax liability of export subsidiaries, the allocation of research and development costs based on categories enumerated in the Standard Industrial Classification, rather than a company’s chosen grouping. The Internal Revenue Code defers or, in some cases, waives the tax liability of export subsidiaries known as Domestic International Sales Corporations ("DISCs") and Foreign Sales Corporations ("FSCs"). This decision is important to any domestic corporation that has organized DISCs and FSCs and thus has a strong incentive to allocate costs in a way that maximizes these subsidiaries’ profits.
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