Source: https://caselaw.findlaw.com/us-supreme-court/537/437.html
Timestamp: 2019-09-15 13:10:36
Document Index: 260264990

Matched Legal Cases: ['§991', '§994', '§1', '§1', '§1', '§991', '§994', '§801', '§991', '§921', '§174', '§1', '§1', '§861', '§1', '§991', '§1', '§1', '§1', '§1', '§1', '§174', '§7805', '§861', '§1', '§1', '§1', '§1', '§1', '§174', '§994', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§174', '§174', '§861', '§1', '§1', '§1', '§1', '§992', '§992', '§994', '§114', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§223', '§1', '§1']

BOEING CO. v. UNITED STATES | FindLaw
BOEING CO. et al. v. UNITED STATES(2003)
Argued: December 9, 2002Decided: March 4, 2003
Under a 1971 statute providing special tax treatment for export sales made by an American manufacturer through a subsidiary that qualified as a "domestic international sales corporation" (DISC), no tax is payable on the DISC's retained income until it is distributed. See 26 U. S. C. §§991-997. The statute thus provides an incentive to maximize the DISC's share--and to minimize the parent's share--of the parties' aggregate income from export sales. The statute provides three alternative ways for a parent to divert a limited portion of its income to the DISC. See §994(a)(1)-(3). The alternative that The Boeing Company chose limited the DISC's taxable income to a little over half of the parties "combined taxable income" (CTI). In 1984, the "foreign sales corporation" (FSC) provisions replaced the DISC provisions. As under the DISC regime, it is in the parent's interest to maximize the FSC's share of the taxable income generated by export sales. Because most of the differences between these regimes are immaterial to this suit, the Court's analysis focuses mainly on the DISC provisions. The Treasury Regulation at issue, 26 CFR §1.861-8(e)(3) (1979), governs the accounting for research and development (R&D) expenses when a taxpayer elects to take a current deduction, telling the taxpaying parent and its DISC "what" must be treated as a cost when calculating CTI, and "how" those costs should be (a) allocated among different products and (b) apportioned between the DISC and its parent. With respect to the "what" question, the regulation includes a list of Standard Industrial Classification (SIC) categories (e.g., transportation equipment) and requires that R&D for any product within the same category as the exported product be taken into account. The regulations use gross receipts from sales as the basis for both "how" questions. Boeing organized its internal operations along product lines (e.g., aircraft model 767) for management and accounting purposes, each of which constituted a separate "program" within the organization; and $3.6 billion of its R&D expenses were spent on "Company Sponsored Product Development," i.e., product-specific research. Boeing's accountants treated all Company Sponsored costs as directly related to a single program and unrelated to any other program. Because nearly half of the Company Sponsored R&D at issue was allocated to programs that had no sales in the year in which the research was conducted, that amount was deducted by Boeing currently in calculating its taxable income for the years at issue, but never affected the calculation of the CTI derived by Boeing and its DISC from export sales. The Internal Revenue Service reallocated Boeing's Company Sponsored R&D costs for 1979 to 1987, thereby decreasing the untaxed profits of its export subsidiaries and increasing its taxable profits on export sales. After paying the additional taxes, Boeing filed this refund suit. In granting Boeing summary judgment, the District Court found §1.861-8(e)(3) invalid, reasoning that its categorical treatment of R&D conflicted with congressional intent that there be a direct relationship between items of gross income and expenses related thereto, and with a specific DISC regulation giving the taxpayer the right to group and allocate income and costs by product or product line. The Ninth Circuit reversed.
THE BOEING COMPANY and CONSOLIDATED
SUBSIDIARIES, PETITIONERS
01-1209 v.
01-1382 v.
BOEING SALES CORPORATION et al.
This suit concerns tax provisions enacted by Congress in 1971 to provide incentives for domestic manufacturers to increase their exports and in 1984 to limit and modify those incentives. The specific question presented involves the interpretation of a Treasury Regulation (26 CFR §1.861-8(e)(3) (1979)) promulgated in 1977 that governs the accounting for research and development (R&D) expenses under both statutory schemes.1 We shall explain the general outlines of the two statutes before we focus on that regulation.
The 1971 statute provided special tax treatment for export sales made by an American manufacturer through a subsidiary that qualified as a "domestic international sales corporation" (DISC).2 The DISC itself is not a taxpayer; a portion of its income is deemed to have been distributed to its shareholders, and the shareholders must pay taxes on that portion, but no tax is payable on the DISC's retained income until it is actually distributed. See 26 U. S. C. §§991-997. Typically, "a DISC is a wholly owned subsidiary of a U. S. corporation." 1 Senate Finance Committee, Deficit Reduction Act of 1984, 98th Cong., p. 630, n. 1 (Comm. Print 1984) (hereinafter Committee Print). The statute thus provides an incentive to maximize the DISC's share--and to minimize the parent's share--of the parties' aggregate income from export sales.
The DISC statute does not, however, allow the parent simply to assign all of the profits on its export sales to the DISC. Rather, "to avoid granting undue tax advantages,"3 the statute provides three alternative ways in which the parties may divert a limited portion of taxable income from the parent to the DISC. See 26 U. S. C. §§994(a)(1)-(3). Each of the alternatives assumes that the parent has sold the product to the DISC at a hypothetical "transfer price" that produced a profit for both seller and buyer when the product was resold to the foreign customer. The alternative used by Boeing in this suit limited the DISC's taxable income to a little over half of the parties' "combined taxable income" (CTI).4
Soon after its enactment, the DISC statute became "the subject of an ongoing dispute between the United States and certain other signatories of the General Agreement on Tariffs and Trade (GATT)" regarding whether the DISC provisions were impermissible subsidies that violated our treaty obligations. Committee Print 634. "To remove the DISC as a contentious issue and to avoid further disputes over retaliation, the United States made a commitment to the GATT Council on October 1, 1982, to propose legislation that would address the concerns of other GATT members." Id., at 634-635. This ultimately resulted in the replacement of the DISC provisions in 1984 with the "foreign sales corporation" (FSC) provisions of the Code. See Deficit Reduction Act of 1984, Pub. L. 98-369, §§801-805, 98 Stat. 985.5
Unlike a DISC, an FSC is a foreign corporation, and a portion of its income is taxable by the United States. See ibid.; see also B. Bittker & J. Eustice, Federal Income Taxation of Corporations and Shareholders ¶ ;17.14 (5th ed. 1987). Whereas a portion of a DISC's income was tax deferred, a portion of an FSC's income is exempted from taxation. Compare 26 U. S. C. §§991-997 with 26 U. S. C. §§921, 923 (1988 ed.). Hence, under the FSC regime, as under the DISC regime, it is in the parent's interest to maximize the FSC's share of the taxable income generated by export sales. Because the differences between the DISC and FSC regimes for the most part are immaterial to this suit, the analysis in this opinion will focus mainly on the DISC provisions.6
The Internal Revenue Code gives the taxpayer an election either to capitalize and amortize the costs of R&D over a period of years or to deduct such expenses currently. See 26 U. S. C. §174. The regulation at issue here, 26 CFR §1.861-8(e)(3) (1979), deals with R&D expenditures for which the taxpayer has taken a current deduction. It tells the taxpaying parent and its DISC "what" must be treated as a cost when calculating CTI, and
"how" those costs should be (a) allocated among different
products and (b) apportioned between the DISC and its
parent.7
With respect to the "what" question, the Treasury might have adopted a broad approach defining the relevant R&D as including all of the parent's products, or, a narrow approach defining the relevant R&D as all R&D directly related to a particular product being exported. Instead, the regulation includes a list of two-digit Standard Industrial Classification (SIC) categories (examples are "chemicals and allied products" and "transportation equipment"), and it requires that R&D for any product within the same category as the exported product be taken into account.8 See ibid. The regulation explains that R&D on any product "is an inherently speculative activity" that sometimes contributes unexpected benefits on other products, and "that the gross income derived from successful research and development must bear the cost of unsuccessful research and development." Ibid.
During the tax years at issue here, Boeing organized its internal operations along product lines (e.g., aircraft models 727, 737, 747, 757, 767) for management and accounting purposes, each of which constituted a separate "program" within the Boeing organization. For those purposes, it divided its R&D expenses into two broad categories: "Blue Sky" and "Company Sponsored Product Development." The former includes the cost of broad-based research aimed at generally advancing the state of aviation technology and developing alternative designs of new commercial planes. The latter includes product-specific research pertaining to a specific program after the board of directors has given its approval for the production of a new model. With respect to its $1 billion of "Blue Sky" R&D, Boeing's accounting was essentially consistent with 26 CFR §1.861-8(e)(3) (1979).9 Its method of accounting for $3.6 billion of "Company Sponsored" R&D gave rise to this litigation.
Boeing's accountants treated all of the Company Sponsored research costs as directly related to a single program, and as totally unrelated to any other program. Thus, for DISC purposes, the cost of Company Sponsored R&D directly related to the 767 model, for example, had no effect on the calculation of the "combined taxable income" produced by export sales of any other models. Moreover, because immense Company Sponsored research costs were routinely incurred while a particular model was being completed and before any sales of that model occurred, those costs effectively "disappeared" in the calculation of the CTI even for the model to which the R&D was most directly related.10 Almost half of the $3.6 billion of Company Sponsored R&D at issue in this suit was allocated to programs that had no sales in the year in which the research was conducted. That amount (approximately $1.75 billion) was deducted by Boeing currently in the calculation of its taxable income for the years at issue, but never affected the calculation of the CTI derived by Boeing and its DISC from export sales.
Section 861 of the Internal Revenue Code distinguishes between United States and foreign source income for several different purposes. See 26 U. S. C. §861. The regulation at issue in this suit, 26 CFR §1.861-8(e)(3) (1979), was promulgated pursuant to that general statute. Separate regulations promulgated under the DISC statute, 26 U. S. C. §§991-997, incorporate 26 CFR §1.861-8(e)(3) (1979) by specific reference. See §1.994-1(c)(6)(iii) (citing and incorporating the cost allocation rules of §1.861-8). Boeing does not claim that its method of accounting for Company Sponsored R&D complied with §1.861-8(e)(3). Rather, it argues that §1.861-8(e)(3) is so plainly inconsistent with congressional intent and with other provisions of the DISC regulations that it cannot
be validly applied to its computation of CTI for DISC purposes.
In the case of a sale of export property to a DISC by a person described in section 482, the taxable income of such DISC and such person shall be based upon a transfer price which would allow such DISC to derive taxable income attributable to such sale (regardless of the sales price actually charged) in an amount which does not exceed the greatest of--
The Secretary's classification of all R&D as an indirect cost of all export sales of products in a broadly defined SIC category--in other words, as "attributable" to such sales--is surely not arbitrary. It has the virtue of providing consistent treatment for cost items used in computing the taxpayer's domestic taxable income and its CTI. Moreover, its allocation of R&D expenditures to all products in a category even when specifically intended to improve only one or a few of those products is no more tenuous than the allocation of a chief executive officer's salary to every product that a company sells even when he devotes virtually all of his time to the development of an Edsel.
On the other hand, even if Boeing's method of accounting for R&D is fully justified for management purposes, it certainly produces anomalies for tax purposes. Most obvious is the fact that it enabled Boeing to deduct some $1.75 billion of expenditures from its domestic taxable earnings under 26 U. S. C. §174 and never deduct a penny of those expenditures from its "combined taxable earnings" under the DISC statute. See Brief for Petitioners 11. Less obvious, but nevertheless significant, is that Boeing's method assumed that Blue Sky research produces benefits for airplane models that are producing current income and--at the same time--assumed that Company Sponsored research related to a specific product, such as the 727, is not likely to produce benefits for other airplane models, such as the 737 or 767.11
There are at least two flaws in this argument. First, although the emphasized words authorize ratable apportionment of costs that cannot definitely be allocated to some item or class of income, the sentence as a whole does not prohibit ratable apportionment of expenses that could be, but perhaps in fairness should not be, treated as direct costs. Second, the Secretary has the authority to prescribe regulations determining whether an expense can be properly apportioned to an item of gross income in the calcu-
lation of CTI. See 26 U. S. C. §7805(a). Thus, as in
this suit, if the Secretary reasonably determines that Company Sponsored R&D can be properly apportioned on a categorical basis, the italicized portion of §861 is simply inapplicable.
The regulations included in 26 CFR §1.994-1 (1979) set forth intercompany pricing rules for DISCs. They generally describe the three methods of determining a transfer price, noting that the taxpayer may choose the most favorable method, and may group transactions to use one method for some export sales and another method for others. See ibid. With respect to the CTI method used by Boeing, there is a rule, §1.994-1(c)(6), that describes the computation of CTI. The rule broadly defines the CTI of a DISC and its related supplier from a sale of export property as the excess of gross receipts over their total costs "which relate to such gross receipts."12 Subdivision (iii) of that rule, on which Boeing relies, provides:
Boeing also argues that the regulations expressly allow it to allocate and apportion R&D expenses to groups of export sales that are based on industry usage rather than SIC categories. The regulations providing the strongest support for this argument are §§1.994-1(c)(7)(i) and (ii)(a), which control the grouping of transactions for the purpose of determining the transfer price of sales of export property, and §1.994-1(c)(6)(iv), which governs the grouping of receipts when the CTI method of transfer pricing is used.13 Treasury Regulation §1.994-1(c)(7) reads, in part, as follows:
As we understand the statutory and regulatory scheme, it gives controlling effect to three important choices by the taxpayer. First, the taxpayer may elect to deduct R&D expenses on an annual basis instead of capitalizing and amortizing those costs. See 26 U. S. C. §174(a)(1). Second, when engaging in export transactions with a DISC, the taxpayer may choose any one of the three methods of determining the transfer price. See §994(a). Third, the taxpayer may decide how best to group those transactions for purposes of applying the transfer pricing methods. See 26 CFR §1.994-1(c)(7) (1979). Conceivably, the taxpayer could account for each sale separately, by product lines, or by grouping all of its export sales together. These regulations confirm the finality of the third type of choice (i.e., which groups of sales will be evaluated under one of the three alternative transfer pricing methods), but do not speak to the questions answered by the regulation at issue in this suit--namely, whether or how a particular research cost should be allocated and apportioned.
Second, the 1977 R&D regulation at issue in this suit had been in effect for seven years when Congress enacted the FSC provisions. Yet Congress did not legislatively override 26 CFR §1.861-8(e)(3) (1979) in enacting the FSC provisions. In fact, although a moratorium was placed on the application of §1.861-8(e)(3) for purposes of the sourcing of income in 1981,14 a 1984 conference agreement specified that the moratorium would "not apply for other purposes, such as the computation of combined taxable income of a DISC (or FSC) and its related supplier." H. R. Conf. Rep. No. 98-861, p. 1263 (1984). The fact that Congress did not legislatively override 26 CFR §1.861-8(e)(3) (1979) in enacting the FSC provisions in 1984 serves as persuasive evidence that Congress regarded that regulation as a correct implementation of its intent. See Lorillard v. Pons, 434 U. S. 575, 580-581 (1978).
To read the majority opinion, one would think that the Court has before it a perfectly clear statutory and regulatory scheme and that the position of petitioners/cross-respondents (hereinafter Boeing) is utterly without support. Nothing could be further from the facts of this suit. Indeed, the Internal Revenue Service (IRS) itself initially read the statutory and regulatory provisions at issue here to permit precisely what Boeing asserts it is allowed to do.1
Although under §1.991-1(c)(7) taxpayers are given three choices with respect to the proper grouping of export income (and the related allocation of expenses), and although §1.994-1(c)(6)(iv) provides that the taxpayer's selection under §1.991-1(c)(7) shall be "controlling," §1.861-8(e)(3) takes away the very choices §1.991-1 provides. Under §1.861-8(e)(3), the taxpayer is told that R&D expenses may be allocated solely to items or classes of gross income resulting from products that are within the same 2-digit SIC group--which happens to be only one of the three options given under §1.991-1(c)(7). In my view, the rule set forth in §1.861-8(e)(3) entirely eviscerates the options given in §1.991-1. Thus, despite the Court's efforts to show that the two regulations complement, rather than contradict, each other, ante, at 15-17, the conflict is irreconcilable.2 On these facts, a taxpayer should be permitted to compute its tax liability under §1.991-1, rather than under §1.861-8(e)(3), based on the principle that a specific rule governs a general one.3 See Morales v. Trans World Airlines, Inc., 504 U. S. 374, 384 (1992); Crawford Fitting Co. v. J. T. Gibbons, Inc., 482 U. S. 437, 445 (1987); see also St. Jude Medical, Inc. v. Commissioner, 34 F. 3d 1394 (CA8 1994).
The Court disapproves of Boeing's method of allocating R&D because, as the Court sees it, Boeing's approach results in the "disappear[ance]" of relevant costs, ante, at 6, in "the sense that [R&D costs] were not accounted for by Boeing in computing its [combined taxable income]," ante, at 7, n. 10. The Court is troubled by the fact that this computation method has enabled Boeing "to deduct some $1.75 billion of expenditures from its domestic taxable earnings under 26 U. S. C. §174 and never deduct a penny of those expenditures from its 'combined taxable earnings' under the DISC statute." Ante, at 11-12. But the "disappearance" of Boeing's R&D expenses is the direct result of Congress' decision to encourage such expenditures by making them immediately deductible under 26 U. S. C. §174(a)(1). Moreover, the approach adopted in the regulations, and approved by the Court, does not remedy the alleged problem of disappearing R&D expenses. A company that decides to enter the export market with a product unrelated to its existing business remains free to deduct in the current tax period all R&D expenses incurred in connection with the new product, even though those expenses would not be used to offset DISC income resulting from the sale of existing products.4 Finally, neither the Court nor the Government provide a satisfactory explanation for why §861 can be read to permit the "disappearance" of most expenses, see, e.g., 26 CFR §1.861-8(d)(1) (1979) ("Each deduction which bears a definite relationship to a class of gross income shall be allocated to that class ... even though, for the taxable year, no gross income in such class is received or accrued ... . In apportioning deductions, it may be that, for the taxable year, there is no gross income in the statutory grouping (or residual grouping), or that deductions exceed the amount of gross income in the statutory grouping (or residual grouping)"); see also 1 J. Isenbergh, International Taxation: U. S. Taxation of Foreign Persons and Foreign Income ¶ ;21.10 (3d ed. 2003) ("[I]f an expense incurred in one year is properly allocable to income arising in another, the expense will be allocated to the class to which the income belongs and may therefore produce a loss in that class for the year"), but to disallow the "disappearance" of R&D expenses.
Together with No. 01-1382, United States v. Boeing Sales Corp. et al., also on certiorari to the same court.
In 1996, the provisions of 26 CFR §1.861-8 were amended, renumbered, and republished as 26 CFR §1.861-17. See 26 CFR §1.861-17 (2002); see also 60 Fed. Reg. 66503 (1995).
To qualify as a DISC, at least 95 percent of a corporation's gross receipts must arise from qualified export receipts. See 26 U. S. C. §992(a)(1)(A). In addition, at least 95 percent of the corporation's assets must be export related. See §992(a)(1)(B).
S. Rep. No. 92-437, p. 13 (1971) (hereinafter S. Rep.).
To be more precise, it allowed the DISC "to derive taxable income attributable to [an export sale] in an amount which does not exceed ... 50 percent of the combined taxable income of [the DISC and the parent] plus 10 percent of the export promotion expenses of such DISC attributable to such receipts ... . " 26 U. S. C. §994(a)(2).
A hypothetical example in both the House and Senate Committee Reports illustrated the computation of a transfer price of $816 based on a DISC's selling price of $1,000 and the parent's cost of goods sold of $650. The gross margin of $350 was reduced by $180 (including the DISC's promotion expenses of $90, the parent's directly related selling and administrative expenses of $60, and the parent's prorated indirect expenses of $30), to produce a CTI of $170. Half of that amount ($85) plus 10 percent of the DISC's promotion expenses ($9) gave the DISC its allowable taxable income of $94, leaving only $76 of income immediately taxable to the parent. The $184 aggregate of the two amounts attributed to the DISC (promotion expenses of $90 plus its $94 share of CTI) subtracted from the $1,000 gross receipt produced the "transfer price" of $816. See S. Rep., at 108, n. 7; H. R. Rep. No. 92-533, p. 74, n. 7 (1971) (hereinafter H. R. Rep.).
In 2000, Congress repealed and replaced the FSC provisions with the "extraterritorial income" exclusion of 26 U. S. C. §114.
Two aspects of the 1984 statute that do have special significance to this suit are discussed in Part IV, infra.
Treasury Regulation §1.861-8 (1979) also specifies how other specific items of expense should be treated. See, e.g., 26 CFR §1.861-8(e)(2) (1979) (interest fees); §1.861-8(e)(5) (legal and accounting fees); §1.861-8(e)(6) (income taxes).
The original regulation used two-digit SIC categories. See §1.861-8(e)(3). The current regulation uses narrower three-digit SIC categories, see 26 CFR §1.861-17(a)(2)(ii) (2002), but the change is not relevant to this suit.
Because all of Boeing's commercial aircraft were "transportation equipment" within the meaning of the Treasury Regulation, it properly allocated all of its Blue Sky research among all of its programs, and then apportioned those costs between the parent and the DISC. However, according to the Government, it erroneously did so on the basis of hours of direct labor rather than sales. See Brief for United States 10.
When Boeing charged R&D costs to programs that had no sales in the year the research was conducted, the R&D costs effectively "disappeared" in the sense that they were not accounted for by Boeing in computing its CTI.
This assumption, of course, runs contrary to the Secretary's determination that R&D "is an inherently speculative activity" that sometimes contributes unexpected benefits on other products. 26 CFR §1.861-8(e)(3)(i)(A) (1979).
Treasury Regulation §1.994-1(c)(6), 26 CFR §1.994-1(c)(6) (1979), provides in part:
"(i) Subject to subdivisions (ii) through (v) of this subparagraph, the taxpayer's method of accounting used in computing taxable income will be accepted for purposes of determining amounts and the taxable year for which items of income and expense (including depreciation) are taken into account. See §1.991-1(b)(2) with respect to the method of accounting which may be used by a DISC."
In support of its argument that §§1.994-1(c) and 1.861-8(e)(3) conflict, Boeing also points to various proposed regulations, including example 1 of proposed regulation §1.861-8(g). See Brief for Petitioners 22-26. Unlike Boeing and the dissent, see post, at 2-3, we find these proposed regulations to be of little consequence given that they were nothing more than mere proposals. In 1972--when regulations governing DISCs were first proposed--the Secretary made clear that the proposed regulations were suggestions only and that whatever final regulations were ultimately adopted would govern. See Technical Memorandum accompanying Notice of Proposed Rulemaking, 1972 T. M. Lexis 14, pp. *8-*9 (June 29, 1972) (providing that in determining deductible expenses, "the rules of section 861(b) and §1.861-8 are to be applied in whatever form they ultimately take in a new notice to be prepared").
In 1981, Congress imposed a temporary moratorium on the application of the cost allocation rules of 26 CFR §1.861-8(e)(3) (1979) solely for the geographic sourcing of income. See Economic Recovery Tax Act of 1981, Pub. L. 97-34, §223, 95 Stat. 249. As a result, research expenditures made for research conducted in the United States were allocated against United States source gross income only--not between United States source income and foreign source income. See H. R. Conf. Rep. No. 98-861, p. 1262 (1984).
Because, as the Court notes, ante, at 4, differences in the rules governing domestic international sales corporations (DISCs) and foreign sales corporations do not affect the outcome of this suit, I too focus only on the relevant DISC provisions.
A taxpayer wishing to (1) group its sales based on an accepted industry practice, for example based on different models, and (2) allocate its R&D expenses with respect to a specific model to the items or classes of gross income resulting from that model is not, on the Government's view, permitted to do so. Rather, the taxpayer must first allocate R&D expenses incurred in connection with the relevant model to items or classes of gross income resulting from all models falling within the same 2-digit SIC group and only after doing so can the taxpayer deduct a portion of that model's R&D expenses from the income earned by sales of that model.
With respect to a DISC, §1.991-1 provides the more specific rules because it applies only to DISCs, while §1.861-8(e)(3) sets forth more general rules because it applies to all taxpayers that have foreign source income.
Boeing illustrates this point with the following example: Suppose a company that produces and exports athletic clothing (SIC Code 23) decides to invest the proceeds of its clothing sales in research to develop a line of athletic equipment (SIC Code 39). The company has current DISC sales of $1 million from the athletic clothing, no current sales of athletic equipment, and $500,000 in athletic equipment R&D expenses. Under the regulations, the $500,000 of equipment-related R&D will be allocated to the athletic equipment SIC Code, which has no income. It will not be allocated to the athletic clothing SIC Code to reduce the income eligible for the DISC benefit related to the clothing. Thus, in the words of the Court, the expense will simply "disappear." Brief for Petitioners 37, n. 17.