[Code of Federal Regulations]
[Title 26, Volume 10]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.995-6]

[Page 723]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.995-6  Taxable income attributable to military property.

    (a) Gross income attributable to military property. For purposes of 
section 995(b)(3)(A)(i), the term ``gross income which is attributable 
to military property'' includes income from the sale, exchange, lease, 
or rental of military property (as described in paragraph (c) of this 
section). The term also includes gross income from the performance of 
services which are related and subsidiary (as defined in Sec. 1.993-
1(d)) to any qualified sale, exchange, lease, or rental of military 
property. Where gross income cannot be determined on an item by item 
basis, the gross income with respect to those items not so determinable 
shall be apportioned. Such apportionment shall be accomplished using 
appropriate facts and circumstances, so that the gross income 
apportioned to sale of military property bears a reasonably close 
factual relationship to the actual gross income earned on such sales. 
The apportionment shall be based on methods which include the fair 
market value of property sold or exchanged, the fair rental value of any 
leaseholds granted, the fair market value of any related or subsidiary 
services performed in connection with such sale or leases or methods 
based on gross receipts or costs of goods sold, where appropriate.
    (b) Deductions. For purposes of section 995(b)(3)(A)(ii), deductions 
shall be properly allocated and apportioned to gross income, described 
in paragraph (a) of this section, in accordance with the rules of Sec. 
1.861-8. These deductions include all applicable deductions from gross 
income provided under part VI of subchapter B of chapter 1 of the Code.
    (c) Military property. For purposes of this section, the term 
military property means any property which is an arm, ammunition, or 
implement of war designated in the munitions list published pursuant to 
section 38 of the International Security Assistance and Arms Export 
Control Act of 1976 (22 U.S.C. 2778 which superseded 22 U.S.C. 1934) and 
the regulations thereunder (22 CFR 121.01).
    (d) Illustration. The principles of this section may be illustrated 
by the following example:
    Example. X Corporation elects to be a DISC for the first time in 
1976. X has taxable income of $50,000, of which $30,000 is attributable 
to military property and $10,000 to interest on producer's loans. The 
total deemed distributions with respect to X are as follows:




(1) Gross interest from Producer's loans in 1976.............    $10,000
(2) 50 percent of the taxable income of the DISC attributable     15,000
 to military property in 1976................................
(3) One-half of the excess of taxable income for 1976 over        12,500
 the sum of lines (1) and (2) (\1/2\ of ($50,000 minus
 $25,000))...................................................
(4) Total deemed distributions (sum of total lines (1), (2),      37,500
 and (3))....................................................



(Secs. 995(e)(7), (8) and (10), 995(g) and 7805 of the Internal Revenue 
Code of 1954 (90 Stat. 1655, 26 U.S.C. 995 (e)(7), (8) and (10); 90 
Stat. 1659, 26 U.S.C. 995(g); and 68A Stat 917, 26 U.S.C. 7805))

[T.D. 7984, 49 FR 40019, Oct. 12, 1984]