TOPIC

We are seeking caselaw/research regarding how the ?manufactured,
produced, grown, or extracted? language contained in the IRS?s
Substantial Assistance Rules in Regulation 1.954-4 (d) (1) (ii) has
been applied to controlled foreign corporation (CFC) media companies
in the business of building/owning/operating media networks whose
revenues come from selling intangible media-based information products
(e.g. 30 second television spots for commercial advertisements, clicks
for internet advertisements) as it relates to determining Sub-part F
treatment of that income/revenue.

ANSWER REQUIREMENTS
Your answer should not be only opinion-based, but rather should be
comprised of: (a) a cover note (which can be very short) summarizing
your conclusion/findings, plus, (b) actual citations of findings on
this matter, including the actual text of the cases/findings (or links
to them).

QUESTION
Can you find actual legal rulings/precedents in which a controlled
foreign corporation (CFC) media company in the business of
building/operating media networks (e.g. Univision television network)
whose revenue primarily comes from selling intangible media-based
information products (e.g. 30 second television spots for commercial
advertisements, clicks for internet advertisements) within the meaning
of the ?manufactured, produced, grown, or extracted? text and meaning
of the Substantial Assistance Rules in Regulation 1.954-4 part (d) (1)
(ii) as it relates to determining Sub-part F treatment, thereby
resulting in the revenue/income from sales of those intangible
products having been determined to be ?excluded items? within the
meaning of that regulation, and therefore not required to be taxed in
the US under Sub-part F?   On the flip side, can you find actual legal
rulings/precedents where such CFC media company has been determined
NOT to have ?manufactured, produced, grown or extracted such
products?) in accordance with the regulation and therefore was
determined to have to pay tax on such income thru sub-part F?

BACKGROUND
Suppose a controlled foreign corporation (CFC) media company sells
specific kinds of fungible/intangible media-based information products
  for specific prices (depending on targeting etc).  Two examples of
fungible/intangible media-based products are:

(i)	a specific kind of television or radio commercial advertising time
(e.g. a 30 second spot) sold to an advertiser for a specific price for
purposes of broadcasting a commercial to a specific audience {i.e.
specific geography, channel, etc}, and,

(ii)	a specific kind of click bought by an advertiser from a company
like Google, for example Advertiser X pays $1.50 for each click on a
text ad displayed only to users located in Manchester, England who
have just typed/requested search results for the keyword ?mortgage?}.
And to be clear, the various flavors of ?intangible ads? are very
specific and therefore fungible, and sold in high quanitities for
different prices to advertisers.  Examples:

a)	suppose a foreign subsidiary of a radio media company like Clear
Channel Communications were selling 30 second radio spots run in the
8AM hour on its Berlin, Germany ?all-news radio station? for $5.00
CPM?s {cost per thousand impressions} while selling 30 second radio
spots run in the 10PM hour on its Manchester, England ?all-hip hop
music station? for $2.00 CPM?s, or

b)	suppose a foreign subsidiary of an Internet media company like
Google were selling ?mortgage? clicks for $5.00 apiece, ?airline
ticket? clicks for $2.00 apiece, etc, or

c)	suppose a foreign subsidiary of a US owned media company sold 30
second TV spots on a hong kong TV station during 1st segment of
Survivor goes for price X per thousand impressions, whereas a 30
second TV spot during 1st segment of Jay Lenno goes for Price Y per
thousand impressions.

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Request for Question Clarification by pafalafa-ga on 16 Sep 2005 20:25 PDT

bizguy69-ga,

I like to think of myself as a pretty good legal/financial/IRS
researcher.  Here's an example of a prior question I worked on:


http://answers.google.com/answers/threadview?id=536202


I'd be happy to look into your question as well, but we would need to
have a clear understanding of one thing up front.

I think the odds of finding a case as precisely defined as what you're
looking for are actually pretty small.  Such a case may never have
occured, or it may have occurred but not made the legal databases.

The most I can promise is a best-effort search.  But that entails the
possibility that my answer will be something along the lines
of...'Sorry...I looked, but there's nothing out there'.

If you're willing to run that risk, just say the word.  

If you're not comfortable with that approach, then perhaps you can
suggest a viable alternative.

Thanks,

pafalafa-ga