Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 73-96

1973-1 C.B. 364

Sec. 994

IRS Headnote

Centralized billing of accumulated expenses through the parent corporation's computer system will not cause disallowance of otherwise qualified export promotional expenses of a DISC subsidiary.

Full Text

Rev. Rul. 73-96

Advice has been requested whether the method of processing expenses described below will cause such expenses to be disallowed as "export promotion expenses" if they would otherwise qualify as such expenses under section 994(c) of the Internal Revenue Code of 1954. For the taxable year beginning January 1, 1972, Y corporation, a wholly owned subsidiary of X corporation, elected to be treated as a Domestic International Sales Corporation ("DISC").

X corporation uses a centralized computer system for all of its United States subsidiaries. The expenses are accumulated by X and then billed to its various subsidiaries (including Y) as inter-company transactions. The inter-company billing represents an accumulation of actual expenses such as advertising, selling, and payroll incurred by the individual companies and is handled, through accounting transactions, as though the expenses had been paid manually by the individual company's personnel.

It is held that expenses which would otherwise qualify as deductions under the Code and which qualify as "export promotion expenses" are not to be disallowed as export promotion expenses because of the method of processing.