concurring: Having joined Judge Chabot’s concurrence, I go on to observe that Judge Ruwe’s analysis appears to be a much more plausible interpretation and application of section 1.993-6(e)(2), Income Tax Regs, (the paragraph (e)(2) regulation), than the majority’s improvised treatment of the commissions on domestic receipts.
I also associate myself with most of the observations and much of the reasoning of Judge Halpern’s dissent. But although I think it would have been preferable for the Court to have required the parties to address adequately the paragraph (e)(2) regulation issue, I do not dissent. I regard the “results” reached by the majority as our decision, in which I join, that HISC has no deficiencies in Federal income tax because it continued to qualify as a Disc for the taxable years in issue.
Because the parties made such an inadequate presentation on the paragraph (e)(2) regulation issue, I would rule for respondent on this issue. Petitioner did not carry its burden of persuasion in presenting facts and in effect conceded the issue by not making a coherent legal argument. Therefore the Court is justified in sustaining respondent’s determination that the improperly/inadvertently commissioned domestic receipts should be included in the denominator of the fraction.
Having expressed my reservations about our treatment of the domestic receipts and the paragraph (e)(2) regulation, I would advance an additional reason to support our conclusion that section 1.993-6(e)(l), Income Tax Regs, (the paragraph (e)(1) regulation), is invalid. It appears that the DISC provisions and the consolidated return regulations contemplate the kind of mismatching that occurred on the foreign sales that Hughes accounted for on the completed contract method and that hisc accounted for on the accrual method.
Hughes is the parent of an affiliated group of corporations that file consolidated returns, but HISC is not a member of that group. This is because, for consolidated return purposes, the term “includible corporation” does not include a “DISC (as defined in section 992(a)(1)).” Sec. 1504(b)(7). As a result, a DISC is permitted to use a taxable year different from that of its parent and other group members. Sec. 1.1502-l(d), Income Tax Regs. Even more important, a DISC is not subject to the rules of the consolidated return regulations, see sec. 1.1502-13(a)(2), Income Tax Regs., that prevent members of a group filing a consolidated return from using different methods of accounting to create mismatches of items of income and expense on intercompany transactions. It therefore appears that the DISC provisions and the consolidated return regulations contemplate the kind of mismatching that occurred in this case.
This statutory separation of a DISC from its parent and siblings has operated in this case to require us to decide it in a vacuum, without addressing the tax treatment of the related items on the consolidated returns of the Hughes affiliated group that bracketed the fiscal years of HISC that are before us. Respondent appears to have missed the boat in failing to disallow Hughes’ deduction of the commissions on the domestic receipts, and in failing to defer its deductions of the commissions on the qualified export receipts arising from the long-term contracts. As a result, the tax treatment of Hughes’ deductions is not before us, and respondent may well have been whipsawed.