§482 — Allocation of income and deductions among taxpayers
378 citing cases
Statute Text — 26 U.S.C. §482
In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Secretary may distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among such organizations, trades, or businesses, if he determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses. In the case of any transfer (or license) of intangible property (within the meaning of section 367(d)(4)), the income with respect to such transfer or license shall be commensurate with the income attributable to the intangible. For purposes of this section, the Secretary shall require the valuation of transfers of intangible property (including intangible property transferred with other property or services) on an aggregate basis or the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such transfers.
Treasury Regulations
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Treas. Reg. §1.482-0Outline of regulations under section 482
This section contains major captions for §§ 1.482-1 through 1.482-9.
(a) In general.
(1) Purpose and scope.
(2) Authority to make allocations.
(3) Taxpayer's use of section 482.
(b) Arm's length standard.
(1) In general.
(2) Arm's length methods.
(i) Methods.
(ii) Selection of category of method applicable to transaction.
(iii) Coordination of methods applicable to certain intangible development arrangements.
(c) Best method rule.
(1) In general.
(2) Determining the best method.
(i) Comparability.
(ii) Data and assumptions.
(A) Completeness and accuracy of data.
(B) Reliability of assumptions.
(C) Sensitivity of results to deficiencies in data and assumptions.
(iii) Confirmation of results by another method.
(d) Comparability.
(1) In general.
(2) Standard of comparability.
(3) Factors for determining comparability.
(i) Functional analysis.
(ii) Contractual terms.
(A) In general.
(B) Identifying contractual terms.
(1) Written agreement.
(2) No written agreement.
(C) Examples.
(iii) Risk.
(A) In general.
(B) Identification of party that bears risk.
(C) Examples.
(iv) Economic conditions.
(v) Property or services.
(4) Special circumstances.
(i) Market share strategy.
(ii) Different geographic markets.
(A) In general.
(B) Example.
(C) Location savings.
(D) Example.
(iii) Transactions ordinarily not accepted as comparables.
(A) In general.
(B) Examples.
(e) Arm's length range.
(1) In general.
(2) Determination of arm's length range.
(i) Single method.
(ii) Selection of comparables.
(iii) Comparables included in arm's length range.
(A) In general.
(B) Adjustment of range to increase reliability.
(C) Interquartile range.
(3) Adjustment if taxpayer's results are outside arm's length range.
(4) Arm's length range not prerequisite to allocation.
(5) Examples.
(f) Scope of review.
(1) In general.
(i) Intent to evade or avoid tax not a prerequisite.
(ii) Realization of income not a prerequisite.
(A) In general.
(B) Example.
(iii) Nonrecognition provisions may not bar allocation.
(A) In general.
(B) Example.
(iv) Consolidated returns.
(2) Rules relating to determination of true taxable income.
(i) [Reserved]
(ii) Allocation based on taxpayer's actual transactions.
(A) In general.
(B) [Reserved]
(iii) Multiple year data.
(A) In general.
(B) Circumstances warranting consideration of multiple year data.
(C) Comparable effect over comparable period.
(D) Applications of methods using multiple year averages.
(E) Examples.
(iv) Product lines and statistical techniques.
(v) Allocations apply to results, not methods.
(A) In general.
(B) Example.
(g) Collateral adjustments with respect to allocations under section 482.
(1) In general.
(2) Correlative allocations.
(i) In general.
(ii) Manner of carrying out correlative allocation.
(iii) Events triggering correlative allocation.
(iv) Examples.
(3) Adjustments to conform accounts to reflect section 482 allocations.
(i) In general.
(ii) Example.
(4) Setoffs.
(i) In general.
(ii) Requirements.
(iii) Examples.
(h) Special rules.
(1) Small taxpayer safe harbor. [Reserved]
(2) Effect of foreign legal restrictions.
(i) In general.
(ii) Applicable legal restrictions.
(iii) Requirement for electing the deferred income method of accounting.
(iv) Deferred income method of accounting.
(v) Examples.
(3) Coordination with section 936.
(i) Cost sharing under section 936.
(ii) Use of terms.
(i) Definitions.
(j) Effective/applicability date.
(a) Loans or advances.
(1) Interest on bona fide indebtedness.
(i) In general.
(ii) Application of paragraph (a) of this section.
(A) Interest on bona fide indebtedness.
(B) Alleged indebtedness.
(iii) Period for which interest shall be charged.
(A) General rule.
(B) Exception for certain intercompany transactions in the ordinary course of business.
(C) Exception for trade or business of debtor member located outside the United States.
(D) Exception for regular trade practice of creditor member or others in creditor's industry.
(E) Exception for property purchased for resale in a foreign country.
(1) General rule.
(2) Interest-free period.
(3) Average collection period.
(4) Illustration.
(iv) Payment; book entries.
(2) Arm's length interest rate.
(i) In general.
(ii) Funds obtained at situs of borrower.
(iii) Safe haven interest rates for certain loans and advances made after May 8, 1986.
(A) Applicability.
(1) General rule.
(2) Grandfather rule for existing loans.
(B) Safe haven interest rate based on applicable Federal rate.
(C) Applicable Federal rate.
(D) Lender in business of making loans.
(E) Foreign currency loans.
(3) Coordination with interest adjustments required under certain other Internal Revenue Code sections.
(4) Examples.
(b) Rendering of services.
(c) Use of tangible property.
(1) General rule.
(2) Arm's length charge.
(i) In general.
(ii) Safe haven rental charge.
(iii) Subleases.
(d) Transfer of property.
(e) Cost sharing arrangement.
(f) Effective/applicability Date.
(1) In general.
(2) Election to apply paragraph (b) to earlier taxable years.
(a) In general.
(b) Comparable uncontrolled price method.
(1) In general.
(2) Comparability and reliability considerations.
(i) In general.
(ii) Comparability.
(A) In general.
(B) Adjustments for differences between controlled and uncontrolled transactions.
(iii) Data and assumptions.
(3) Arm's length range.
(4) Examples.
(5) Indirect evidence of comparable uncontrolled transactions.
(i) In general.
(ii) Limitations.
(iii) Examples.
(c) Resale price method.
(1) In general.
(2) Determination of arm's length price.
(i) In general.
(ii) Applicable resale price.
(iii) Appropriate gross profit.
(iv) Arm's length range.
(3) Comparability and reliability considerations.
(i) In general.
(ii) Comparability.
(A) Functional comparability.
(B) Other comparability factors.
(C) Adjustments for differences between controlled and uncontrolled transactions.
(D) Sales agent.
(iii) Data and assumptions.
(A) In general.
(B) Consistency in accounting.
(4) Examples.
(d) Cost plus method.
(1) In general.
(2) Determination of arm's length price.
(i) In general.
(ii) Appropriate gross profit.
(iii) Arm's length range.
(3) Comparability and reliability considerations.
(i) In general.
(ii) Comparability.
(A) Functional comparability.
(B) Other comparability factors.
(C) Adjustments for differences between controlled and uncontrolled transactions.
(D) Purchasing agent.
(iii) Data and assumptions.
(A) In general.
(B) Consistency in accounting.
(4) Examples.
(e) Unspecified methods.
(1) In general.
(2) Example.
(f) Coordination with intangible property rules.
(a) In general.
(b) Definition of intangible.
(c) Comparable uncontrolled transaction method.
(1) In general.
(2) Comparability and reliability considerations.
(i) In general.
(ii) Reliability.
(iii) Comparability.
(A) In general.
(B) Factors to be considered in determining comparability.
(1) Comparable intangible property.
(2) Comparable circumstances.
(iv) Data and assumptions.
(3) Arm's length range.
(4) Examples.
(d) Unspecified methods.
(1) In general.
(2) Example.
(e) Coordination with tangible property rules.
(f) Special rules for transfers of intangible property.
(1) Form of consideration.
(2) Periodic adjustments.
(i) General rule.
(ii) Exceptions.
(A) Transactions involving the same intangible.
(B) Transactions involving comparable intangible.
(C) Methods other than comparable uncontrolled transaction.
(D) Extraordinary events.
(E) Five-year period.
(iii) Examples.
(3) Ownership of intangible property.
(i) Identification of owner.
(A) In general.
(B) Cost sharing arrangements.
(ii) Examples.
(4) Contribution to the value of intangible property owned by another.
(i) In general.
(ii) Examples.
(5) Consideration not artificially limited.
(6) Lump sum payments
(i) In general.
(ii) Exceptions.
(iii) Example.
(g) Coordination with rules governing cost sharing arrangements.
(h) Effective/applicability date.
(1) In general.
(2) Election to apply regulation to earlier taxable years.
(a) In general.
(b) Determination of arm's length result.
(1) In general.
(2) Tested party.
(i) In general.
(ii) Adjustments for tested party.
(3) Arm's length range.
(4) Profit level indicators.
(i) Rate of return on capital employed.
(ii) Financial ratios.
(iii) Other profit level indicators.
(c) Comparability and reliability considerations.
(1) In general.
(2) Comparability.
(i) In general.
(ii) Functional, risk and resource comparability.
(iii) Other comparability factors.
(iv) Adjustments for differences between tested party and the uncontrolled taxpayers.
(3) Data and assumptions.
(i) In general.
(ii) Consistency in accounting.
(iii) Allocations between the relevant business activity and other activities.
(d) Definitions.
(e) Examples.
(a) In general.
(b) Appropriate share of profits and losses.
(c) Application.
(1) In general.
(2) Comparable profit split.
(i) In general.
(ii) Comparability and reliability considerations.
(A) In general.
(B) Comparability.
(1) In general.
(2) Adjustments for differences between the controlled and uncontrolled taxpayers.
(C) Data and assumptions.
(D) Other factors affecting reliability.
(3) Residual profit split.
(i) In general.
(A) Allocate income to routine contributions.
(B) Allocate residual profit.
(1) Nonroutine contributions generally.
(2) Nonroutine contributions of intangible property.
(ii) Comparability and reliability considerations.
(A) In general.
(B) Comparability.
(C) Data and assumptions.
(D) Other factors affecting reliability
(d) Effective/applicability date.
(iii) Example.
(a) In general.
(1) RAB share method for cost sharing transactions (CSTs).
(2) Methods for platform contribution transactions (PCTs).
(3) Methods for other controlled transactions.
(i) Contribution to a CSA by a controlled taxpayer that is not a controlled participant.
(ii) Transfer of interest in a cost shared intangible.
(iii) Other controlled transactions in connection with a CSA.
(iv) Controlled transactions in the absence of a CSA.
(4) Coordination with the arm's length standard.
(b) Cost sharing arrangement.
(1) Substantive requirements.
(i) CSTs.
(ii) PCTs.
(iii) Divisional interests.
(iv) Examples.
(2) Administrative requirements.
(3) Date of a PCT.
(4) Divisional interests.
(i) In general.
(ii) Territorial based divisional interests.
(iii) Field of use based divisional interests.
(iv) Other divisional bases.
(v) Examples.
(5) Treatment of certain arrangements as CSAs.
(i) Situation in which Commissioner must treat arrangement as a CSA.
(ii) Situation in which Commissioner may treat arrangement as a CSA.
(iii) Examples.
(6) Entity classification of CSAs.
(c) Platform contributions.
(1) In general.
(2) Terms of platform contributions.
(i) Presumed to be exclusive.
(ii) Rebuttal of Exclusivity.
(iii) Proration of PCT Payments to the extent allocable to other business activities.
(A) In general.
(B) Determining the proration of PCT Payments.
(3) Categorization of the PCT.
(4) Certain make-or-sell rights excluded.
(i) In general.
(ii) Examples.
(5) Examples.
(d) Intangible development costs.
(1) Determining whether costs are IDCs.
(i) Definition and scope of the IDA.
(ii) Reasonably anticipated cost shared intangible.
(iii) Costs included in IDCs.
(iv) Examples.
(2) Allocation of costs.
(3) Stock-based compensation.
(i) In general.
(ii) Identification of stock-based compensation with the IDA.
(iii) Measurement and timing of stock-based compensation IDC.
(A) In general.
(1) Transfers to which section 421 applies.
(2) Deductions of foreign controlled participants.
(3) Modification of stock option.
(4) Expiration or termination of CSA.
(B) Election with respect to options on publicly traded stock.
(1) In general.
(2) Publicly traded stock.
(3) Generally accepted accounting principles.
(4) Time and manner of making the election.
(C) Consistency.
(4) IDC share.
(5) Examples.
(e) Reasonably anticipated benefits share.
(1) Definition.
(i) In general.
(ii) Reliability.
(iii) Examples.
(2) Measure of benefits.
(i) In general.
(ii) Indirect bases for measuring anticipated benefits.
(A) Units used, produced, or sold.
(B) Sales.
(C) Operating profit.
(D) Other bases for measuring anticipated benefits.
(E) Examples.
(iii) Projections used to estimate benefits.
(A) In general.
(B) Examples.
(f) Changes in participation under a CSA.
(1) In general.
(2) Controlled transfer of interests.
(3) Capability variation.
(4) Arm's length consideration for a change in participation.
(5) Examples.
(g) Supplemental guidance on methods applicable to PCTs.
(1) In general.
(2) Best method analysis applicable for evaluation of a PCT pursuant to a CSA.
(i) In general.
(ii) Consistency with upfront contractual terms and risk allocation—the investor model.
(A) In general.
(B) Example.
(iii) Consistency of evaluation with realistic alternatives.
(A) In general.
(B) Examples.
(iv) Aggregation of transactions.
(v) Discount rate.
(A) In general.
(B) Considerations in best method analysis of discount rate.
(1) Discount rate variation between realistic alternatives.
(2) [Reserved]
(3) Discount rate variation between forms of payment.
(4) Post-tax rate.
(C) Example.
(vi) Financial projections.
(vii) Accounting principles.
(A) In general.
(B) Examples.
(viii) Valuations of subsequent PCTs.
(A) Date of subsequent PCT.
(B) Best method analysis for subsequent PCT.
(ix) Arm's length range.
(A) In general.
(B) Methods based on two or more input parameters.
(C) Variable input parameters.
(D) Determination of arm's length PCT Payment.
(1) No variable input parameters.
(2) One variable input parameter.
(3) More than one variable input parameter.
(E) Adjustments.
(x) Valuation undertaken on a pre-tax basis.
(3) Comparable uncontrolled transaction method.
(4) Income method.
(i) In general.
(A) Equating cost sharing and licensing alternatives.
(B) Cost sharing alternative.
(C) Licensing alternative.
(D) Only one controlled participant with nonroutine platform contributions.
(E) Income method payment forms.
(F) Discount rates appropriate to cost sharing and licensing alternatives.
(G) The effect of taxation on determining the arm's length amount.
(ii) Evaluation of PCT Payor's cost sharing alternative.
(iii) Evaluation of PCT Payor's licensing alternative.
(A) Evaluation based on CUT.
(B) Evaluation based on CPM.
(iv) Lump sum payment form.
(v) [Reserved]
(vi) Best method analysis considerations.
(A) Coordination with § 1.482-1(c).
(B) Assumptions Concerning Tax Rates.
(C) Coordination with § 1.482-4(c)(2).
(D) Coordination with § 1.482-5(c).
(E) Certain Circumstances Concerning PCT Payor.
(F) Discount rates.
(1) Reflection of similar risk profiles of cost sharing alternative and licensing alternative.
(2) [Reserved]
(vii) Routine platform and operating contributions.
(viii) Examples.
(5) Acquisition Price Method.
(i) In general.
(ii) Determination of arm's length charge.
(iii) Adjusted acquisition price.
(iv) Best method analysis considerations.
(v) Example.
(6) Market capitalization method.
(i) In general.
(ii) Determination of arm's length charge.
(iii) Average market capitalization.
(iv) Adjusted average market capitalization.
(v) Best method analysis considerations.
(vi) Examples.
(7) Residual profit split method.
(i) In general.
(ii) Appropriate share of profits and losses.
(iii) Profit split.
(A) In general.
(B) Determine nonroutine residual divisional profit or loss.
(C) Allocate nonroutine residual divisional profit or loss.
(1) In general.
(2) Relative value determination.
(3) Determination of PCT Payments.
(4) Routine platform and operating contributions.
(iv) Best method analysis considerations.
(A) In general.
(B) Comparability.
(C) Data and assumptions.
(D) Other factors affecting reliability.
(v) Examples.
(8) Unspecified methods.
(h) Form of payment rules.
(1) CST Payments.
(2) PCT Payments.
(i) In general.
(ii) No PCT Payor stock.
(iii) Specified form of payment.
(A) In general.
(B) Contingent payments.
(C) Examples.
(iv) Conversion from fixed to contingent form of payment.
(3) Coordination of best method rule and form of payment.
(i) Allocations by the Commissioner in connection with a CSA.
(1) In general.
(2) CST allocations.
(i) In general.
(ii) Adjustments to improve the reliability of projections used to estimate RAB shares.
(A) Unreliable projections.
(B) Foreign-to-foreign adjustments.
(C) Correlative adjustments to PCTs.
(D) Examples.
(iii) Timing of CST allocations.
(3) PCT allocations.
(4) Allocations regarding changes in participation under a CSA.
(5) Allocations when CSTs are consistently and materially disproportionate to RAB shares.
(6) Periodic adjustments.
(i) In general.
(ii) PRRR.
(iii) AERR.
(A) In general.
(B) PVTP.
(C) PVI.
(iv) ADR.
(A) In general.
(B) Publicly traded companies.
(C) Publicly traded.
(D) PCT Payor WACC.
(E) Generally accepted accounting principles.
(v) Determination of periodic adjustments.
(A) In general.
(B) Adjusted RPSM as of Determination Date.
(vi) Exceptions to periodic adjustments.
(A) Controlled participants establish periodic adjustment not warranted.
(1) Transactions involving the same platform contribution as in the Trigger PCT.
(2) Results not reasonably anticipated.
(3) Reduced AERR does not cause Periodic Trigger.
(4) Increased AERR does not cause Periodic Trigger.
(B) Circumstances in which Periodic Trigger deemed not to occur.
(1) 10-year period.
(2) 5-year period.
(vii) Examples.
(j) Definitions and special rules.
(1) Definitions.
(i) In general.
(ii) Examples.
(2) Special rules.
(i) Consolidated group.
(ii) Trade or business.
(iii) Partnership.
(3) Character.
(i) CST Payments.
(ii) PCT Payments.
(iii) Examples.
(k) CSA administrative requirements.
(1) CSA contractual requirements.
(i) In general.
(ii) Contractual provisions.
(iii) Meaning of contemporaneous.
(A) In general.
(B) Example.
(iv) Interpretation of contractual provisions.
(A) In general.
(B) Examples.
(2) CSA documentation requirements.
(i) In general.
(ii) Additional CSA documentation requirements.
(iii) Coordination rules and production of documents.
(A) Coordination with penalty regulations.
(B) Production of documentation.
(3) CSA accounting requirements.
(i) In general.
(ii) Reliance on financial accounting.
(4) CSA reporting requirements.
(i) CSA Statement.
(ii) Content of CSA Statement.
(iii) Time for filing CSA Statement.
(A) 90-day rule.
(B) Annual return requirement.
(1) In general.
(2) Special filing rule for annual return requirement.
(iv) Examples.
(l) Effective/applicability date.
(m) Transition rule.
(1) In general.
(2) Transitional modification of applicable provisions.
(3) Special rule for certain periodic adjustments.
(a) Introduction.
(b) Examples.
(c) Effective/applicability date.
(a) In general.
(b) Services cost method.
(1) In general.
(2) Eligibility for the services cost method.
(3) Covered services.
(i) Specified covered services.
(ii) Low margin covered services.
(4) Excluded activities.
(5) Not services that contribute significantly to fundamental risks of business success or failure.
(6) Adequate books and records.
(7) Shared services arrangement.
(i) In general.
(ii) Requirements for shared services arrangement.
(A) Eligibility.
(B) Allocation.
(C) Documentation.
(iii) Definitions and special rules.
(A) Participant.
(B) Aggregation.
(C) Coordination with cost sharing arrangements.
(8) Examples.
(c) Comparable uncontrolled services price method.
(1) In general.
(2) Comparability and reliability considerations.
(i) In general.
(ii) Comparability.
(A) In general.
(B) Adjustments for differences between controlled and uncontrolled transactions.
(iii) Data and assumptions.
(3) Arm's length range.
(4) Examples.
(5) Indirect evidence of the price of a comparable uncontrolled services transaction.
(i) In general.
(ii) Example.
(d) Gross services margin method.
(1) In general.
(2) Determination of arm's length price.
(i) In general.
(ii) Relevant uncontrolled transaction.
(iii) Applicable uncontrolled price.
(iv) Appropriate gross services profit.
(v) Arm's length range.
(3) Comparability and reliability considerations.
(i) In general.
(ii) Comparability.
(A) Functional comparability.
(B) Other comparability factors.
(C) Adjustments for differences between controlled and uncontrolled transactions.
(D) Buy-sell distributor.
(iii) Data and assumptions.
(A) In general.
(B) Consistency in accounting.
(4) Examples.
(e) Cost of services plus method.
(1) In general.
(2) Determination of arm's length price.
(i) In general.
(ii) Appropriate gross services profit.
(iii) Comparable transactional costs.
(iv) Arm's length range.
(3) Comparability and reliability considerations.
(i) In general.
(ii) Comparability.
(A) Functional comparability.
(B) Other comparability factors.
(C) Adjustments for differences between the controlled and uncontrolled transactions.
(iii) Data and assumptions.
(A) In general.
(B) Consistency in accounting.
(4) Examples.
(f) Comparable profits method.
(1) In general.
(2) Determination of arm's length result.
(i) Tested party.
(ii) Profit level indicators.
(iii) Comparability and reliability considerations—Data and assumptions—Consistency in accounting.
(3) Examples.
(g) Profit split method.
(1) In general.
(2) Examples.
(h) Unspecified methods.
(i) Contingent-payment contractual terms for services.
(1) Contingent-payment contractual terms recognized in general.
(2) Contingent-payment arrangement.
(i) General requirements.
(A) Written contract.
(B) Specified contingency.
(C) Basis for payment.
(ii) Economic substance and conduct.
(3) Commissioner's authority to impute contingent-payment terms.
(4) Evaluation of arm's length charge.
(5) Examples.
(j) Total services costs.
(k) Allocation of costs.
(1) In general.
(2) Appropriate method of allocation and apportionment.
(i) Reasonable method standard.
(ii) Use of general practices.
(3) Examples.
(l) Controlled services transaction.
(1) In general.
(2) Activity.
(3) Benefit.
(i) In general.
(ii) Indirect or remote benefit.
(iii) Duplicative activities.
(iv) Shareholder activities.
(v) Passive association.
(4) Disaggregation of transactions.
(5) Examples.
(m) Coordination with transfer pricing rules for other transactions.
(1) Services transactions that include other types of transactions.
(2) Services transactions that effect a transfer of intangible property.
(3) Coordination with rules governing cost sharing arrangements.
(4) Other types of transactions that include controlled services transactions.
(5) Examples.
(n) Effective/applicability dates.
(1) In general.
(2) Election to apply regulations to earlier taxable years.
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Treas. Reg. §1.482-0(a)In general.
In general.
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Treas. Reg. §1.482-0(b)Services cost method.
Services cost method.
(1) In general.
(2) Eligibility for the services cost method.
(3) Covered services.
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Treas. Reg. §1.482-0(c)Comparable uncontrolled services price method.
Comparable uncontrolled services price method.
(1) In general.
(2) Comparability and reliability considerations.
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Treas. Reg. §1.482-0(d)Gross services margin method.
Gross services margin method.
(1) In general.
(2) Determination of arm's length price.
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Treas. Reg. §1.482-0(e)Cost of services plus method.
Cost of services plus method.
(1) In general.
(2) Determination of arm's length price.
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Treas. Reg. §1.482-0(f)Comparable profits method.
Comparable profits method.
(1) In general.
(2) Determination of arm's length result.
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Treas. Reg. §1.482-0(g)Profit split method.
Profit split method.
(1) In general.
(2) Examples.
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Treas. Reg. §1.482-0(h)Unspecified methods.
Unspecified methods.
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Treas. Reg. §1.482-0(i)In general.
In general.
(ii) Indirect or remote benefit.
(iii) Duplicative activities.
(iv) Shareholder activities.
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Treas. Reg. §1.482-0(j)Total services costs.
Total services costs.
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Treas. Reg. §1.482-0(k)Allocation of costs.
Allocation of costs.
(1) In general.
(2) Appropriate method of allocation and apportionment.
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Treas. Reg. §1.482-0(l)Controlled services transaction.
Controlled services transaction.
(1) In general.
(2) Activity.
(3) Benefit.
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Treas. Reg. §1.482-0(m)Coordination with transfer pricing rules for other transactions.
Coordination with transfer pricing rules for other transactions.
(1) Services transactions that include other types of transactions.
(2) Services transactions that effect a transfer of intangible property.
(3) Coordination with rules governing cost sharing arrangements.
(4) Other types of transactions that include controlled services transactions.
(5) Examples.
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Treas. Reg. §1.482-0(n)Effective/applicability dates.
Effective/applicability dates.
(1) In general.
(2) Election to apply regulations to earlier taxable years.
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Treas. Reg. §1.482-0(v)Passive association.
Passive association.
(4) Disaggregation of transactions.
(5) Examples.
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Treas. Reg. §1.482-0(x)Valuation undertaken on a pre-tax basis.
Valuation undertaken on a pre-tax basis.
(3) Comparable uncontrolled transaction method.
(4) Income method.
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Treas. Reg. §1.482-1Allocation of income and deductions among taxpayers
(a) In general—(1) Purpose and scope. The purpose of section 482 is to ensure that taxpayers clearly reflect income attributable to controlled transactions and to prevent the avoidance of taxes with respect to such transactions. Section 482 places a controlled taxpayer on a tax parity with an uncontrolled taxpayer by determining the true taxable income of the controlled taxpayer. This section sets forth general principles and guidelines to be followed under section 482. Section 1.482-2 provides rules for the determination of the true taxable income of controlled taxpayers in specific situations, including controlled transactions involving loans or advances or the use of tangible property. Sections 1.482-3 through 1.482-6 provide rules for the determination of the true taxable income of controlled taxpayers in cases involving the transfer of property. Section 1.482-7T sets forth the cost sharing provisions applicable to taxable years beginning on or after January 5, 2009. Section 1.482-8 provides examples illustrating the application of the best method rule. Finally, § 1.482-9 provides rules for the determination of the true taxable income of controlled taxpayers in cases involving the performance of services.
(2) Authority to make allocations. The district director may make allocations between or among the members of a controlled group if a controlled taxpayer has not reported its true taxable income. In such case, the district director may allocate income, deductions, credits, allowances, basis, or any other item or element affecting taxable income (referred to as allocations). The appropriate allocation may take the form of an increase or decrease in any relevant amount.
(3) Taxpayer's use of section 482. If necessary to reflect an arm's length result, a controlled taxpayer may report on a timely filed U.S. income tax return (including extensions) the results of its controlled transactions based upon prices different from those actually charged. Except as provided in this paragraph, section 482 grants no other right to a controlled taxpayer to apply the provisions of section 482 at will or to compel the district director to apply such provisions. Therefore, no untimely or amended returns will be permitted to decrease taxable income based on allocations or other adjustments with respect to controlled transactions. See § 1.6662-6T(a)(2) or successor regulations.
(b) Arm's length standard—(1) In general. In determining the true taxable income of a controlled taxpayer, the standard to be applied in every case is that of a taxpayer dealing at arm's length with an uncontrolled taxpayer. A controlled transaction meets the arm's length standard if the results of the transaction are consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances (arm's length result). However, because identical transactions can rarely be located, whether a transaction produces an arm's length result generally will be determined by reference to the results of comparable transactions under comparable circumstances. See § 1.482-1(d)(2) (Standard of comparability). Evaluation of whether a controlled transaction produces an arm's length result is made pursuant to a method selected under the best method rule described in § 1.482-1(c).
(2) Arm's length methods—(i) Methods. Sections 1.482-2 through 1.482-7 and 1.482-9 provide specific methods to be used to evaluate whether transactions between or among members of the controlled group satisfy the arm's length standard, and if they do not, to determine the arm's length result. This section provides general principles applicable in determining arm's length results of such controlled transactions, but do not provide methods, for which reference must be made to those other sections in accordance with paragraphs (b)(2)(ii) and (iii) of this section. Section 1.482-7 provides the specific methods to be used to evaluate whether a cost sharing arrangement as defined in § 1.482-7 produces results consistent with an arm's length result.
(ii) Selection of category of method applicable to transaction. The methods listed in § 1.482-2 apply to different types of transactions, such as transfers of property, services, loans or advances, and rentals. Accordingly, the method or methods most appropriate to the calculation of arm's length results for controlled transactions must be selected, and different methods may be applied to interrelated transactions if such transactions are most reliably evaluated on a separate basis. For example, if services are provided in connection with the transfer of property, it may be appropriate to separately apply the methods applicable to services and property in order to determine an arm's length result. But see § 1.482-1(f)(2)(i) (Aggregation of transactions). In addition, other applicable provisions of the Code may affect the characterization of a transaction, and therefore affect the methods applicable under section 482. See for example section 467.
(iii) Coordination of methods applicable to certain intangible development arrangements. Section 1.482-7 provides the specific methods to be used to determine arm's length results of controlled transactions in connection with a cost sharing arrangement as defined in § 1.482-7. Sections 1.482-4 and 1.482-9, as appropriate, provide the specific methods to be used to determine arm's length results of arrangements, including partnerships, for sharing the costs and risks of developing intangibles, other than a cost sharing arrangement covered by § 1.482-7. See also §§ 1.482-4(g) (Coordination with rules governing cost sharing arrangements) and 1.482-9(m)(3) (Coordination with rules governing cost sharing arrangements).
(c) Best method rule—(1) In general. The arm's length result of a controlled transaction must be determined under the method that, under the facts and circumstances, provides the most reliable measure of an arm's length result. Thus, there is no strict priority of methods, and no method will invariably be considered to be more reliable than others. An arm's length result may be determined under any method without establishing the inapplicability of another method, but if another method subsequently is shown to produce a more reliable measure of an arm's length result, such other method must be used. Similarly, if two or more applications of a single method provide inconsistent results, the arm's length result must be determined under the application that, under the facts and circumstances, provides the most reliable measure of an arm's length result. See § 1.482-8 for examples of the application of the best method rule. See § 1.482-7 for the applicable methods in the case of a cost sharing arrangement.
(2) Determining the best method. Data based on the results of transactions between unrelated parties provides the most objective basis for determining whether the results of a controlled transaction are arm's length. Thus, in determining which of two or more available methods (or applications of a single method) provides the most reliable measure of an arm's length result, the two primary factors to take into account are the degree of comparability between the controlled transaction (or taxpayer) and any uncontrolled comparables, and the quality of the data and assumptions used in the analysis. In addition, in certain circumstances, it also may be relevant to consider whether the results of an analysis are consistent with the results of an analysis under another method. These factors are explained in paragraphs (c)(2)(i), (ii), and (iii) of this section.
(i) Comparability. The relative reliability of a method based on the results of transactions between unrelated parties depends on the degree of comparability between the controlled transaction or taxpayers and the uncontrolled comparables, taking into account the factors described in § 1.482-1(d)(3) (Factors for determining comparability), and after making adjustments for differences, as described in § 1.482-1(d)(2) (Standard of comparability). As the degree of comparability increases, the number and extent of potential differences that could render the analysis inaccurate is reduced. In addition, if adjustments are made to increase the degree of comparability, the number, magnitude, and reliability of those adjustments will affect the reliability of the results of the analysis. Thus, an analysis under the comparable uncontrolled price method will generally be more reliable than analyses obtained under other methods if the analysis is based on closely comparable uncontrolled transactions, because such an analysis can be expected to achieve a higher degree of comparability and be susceptible to fewer differences than analyses under other methods. See § 1.482-3(b)(2)(ii)(A). An analysis will be relatively less reliable, however, as the uncontrolled transactions become less comparable to the controlled transaction.
(ii) Data and assumptions. Whether a method provides the most reliable measure of an arm's length result also depends upon the completeness and accuracy of the underlying data, the reliability of the assumptions, and the sensitivity of the results to possible deficiencies in the data and assumptions. Such factors are particularly relevant in evaluating the degree of comparability between the controlled and uncontrolled transactions. These factors are discussed in paragraphs (c)(2)(ii) (A), (B), and (C) of this section.
(A) Completeness and accuracy of data. The completeness and accuracy of the data affects the ability to identify and quantify those factors that would affect the result under any particular method. For example, the completeness and accuracy of data will determine the extent to which it is possible to identify differences between the controlled and uncontrolled transactions, and the reliability of adjustments that are made to account for such differences. An analysis will be relatively more reliable as the completeness and accuracy of the data increases.
(B) Reliability of assumptions. All methods rely on certain assumptions. The reliability of the results derived from a method depends on the soundness of such assumptions. Some assumptions are relatively reliable. For example, adjustments for differences in payment terms between controlled and uncontrolled transactions may be based on the assumption that at arm's length such differences would lead to price differences that reflect the time value of money. Although selection of the appropriate interest rate to use in making such adjustments involves some judgement, the economic analysis on which the assumption is based is relatively sound. Other assumptions may be less reliable. For example, the residual profit split method may be based on the assumption that capitalized intangible development expenses reflect the relative value of the intangible property contributed by each party. Because the costs of developing an intangible may not be related to its market value, the soundness of this assumption will affect the reliability of the results derived from this method.
(C) Sensitivity of results to deficiencies in data and assumptions. Deficiencies in the data used or assumptions made may have a greater effect on some methods than others. In particular, the reliability of some methods is heavily dependent on the similarity of property or services involved in the controlled and uncontrolled transaction. For certain other methods, such as the resale price method, the analysis of the extent to which controlled and uncontrolled taxpayers undertake the same or similar functions, employ similar resources, and bear similar risks is particularly important. Finally, under other methods, such as the profit split method, defining the relevant business activity and appropriate allocation of costs, income, and assets may be of particular importance. Therefore, a difference between the controlled and uncontrolled transactions for which an accurate adjustment cannot be made may have a greater effect on the reliability of the results derived under one method than the results derived under another method. For example, differences in management efficiency may have a greater effect on a comparable profits method analysis than on a comparable uncontrolled price method analysis, while differences in product characteristics will ordinarily have a greater effect on a comparable uncontrolled price method analysis than on a comparable profits method analysis.
(iii) Confirmation of results by another method. If two or more methods produce inconsistent results, the best method rule will be applied to select the method that provides the most reliable measure of an arm's length result. If the best method rule does not clearly indicate which method should be selected, an additional factor that may be taken into account in selecting a method is whether any of the competing methods produce results that are consistent with the results obtained from the appropriate application of another method. Further, in evaluating different applications of the same method, the fact that a second method (or another application of the first method) produces results that are consistent with one of the competing applications may be taken into account.
(d) Comparability—(1) In general. Whether a controlled transaction produces an arm's length result is generally evaluated by comparing the results of that transaction to results realized by uncontrolled taxpayers engaged in comparable transactions under comparable circumstances. For this purpose, the comparability of transactions and circumstances must be evaluated considering all factors that could affect prices or profits in arm's length dealings (comparability factors). While a specific comparability factor may be of particular importance in applying a method, each method requires analysis of all of the factors that affect comparability under that method. Such factors include the following—
(i) Functions;
(ii) Contractual terms;
(iii) Risks;
(iv) Economic conditions; and
(v) Property or services.
(2) Standard of comparability. In order to be considered comparable to a controlled transaction, an uncontrolled transaction need not be identical to the controlled transaction, but must be sufficiently similar that it provides a reliable measure of an arm's length result. If there are material differences between the controlled and uncontrolled transactions, adjustments must be made if the effect of such differences on prices or profits can be ascertained with sufficient accuracy to improve the reliability of the results. For purposes of this section, a material difference is one that would materially affect the measure of an arm's length result under the method being applied. If adjustments for material differences cannot be made, the uncontrolled transaction may be used as a measure of an arm's length result, but the reliability of the analysis will be reduced. Generally, such adjustments must be made to the results of the uncontrolled comparable and must be based on commercial practices, economic principles, or statistical analyses. The extent and reliability of any adjustments will affect the relative reliability of the analysis. See § 1.482-1(c)(1) (Best method rule). In any event, unadjusted industry average returns themselves cannot establish arm's length results.
(3) Factors for determining comparability. The comparability factors listed in § 1.482-1(d)(1) are discussed in this section. Each of these factors must be considered in determining the degree of comparability between transactions or taxpayers and the extent to which comparability adjustments may be necessary. In addition, in certain cases involving special circumstances, the rules under paragraph (d)(4) of this section must be considered.
(i) Functional analysis. Determining the degree of comparability between controlled and uncontrolled transactions requires a comparison of the functions performed, and associated resources employed, by the taxpayers in each transaction. This comparison is based on a functional analysis that identifies and compares the economically significant activities undertaken, or to be undertaken, by the taxpayers in both controlled and uncontrolled transactions. A functional analysis should also include consideration of the resources that are employed, or to be employed, in conjunction with the activities undertaken, including consideration of the type of assets used, such as plant and equipment, or the use of valuable intangibles. A functional analysis is not a pricing method and does not itself determine the arm's length result for the controlled transaction under review. Functions that may need to be accounted for in determining the comparability of two transactions include—
(A) Research and development;
(B) Product design and engineering;
(C) Manufacturing, production and process engineering;
(D) Product fabrication, extraction, and assembly;
(E) Purchasing and materials management;
(F) Marketing and distribution functions, including inventory management, warranty administration, and advertising activities;
(G) Transportation and warehousing; and
(H) Managerial, legal, accounting and finance, credit and collection, training, and personnel management services.
(ii) Contractual terms—(A) In general. Determining the degree of comparability between the controlled and uncontrolled transactions requires a comparison of the significant contractual terms that could affect the results of the two transactions. These terms include—
(1) The form of consideration charged or paid;
(2) Sales or purchase volume;
(3) The scope and terms of warranties provided;
(4) Rights to updates, revisions or modifications;
(5) The duration of relevant license, contract or other agreements, and termination or renegotiation rights;
(6) Collateral transactions or ongoing business relationships between the buyer and the seller, including arrangements for the provision of ancillary or subsidiary services; and
(7) Extension of credit and payment terms. Thus, for example, if the time for payment of the amount charged in a controlled transaction differs from the time for payment of the amount charged in an uncontrolled transaction, an adjustment to reflect the difference in payment terms should be made if such difference would have a material effect on price. Such comparability adjustment is required even if no interest would be allocated or imputed under § 1.482-2(a) or other applicable provisions of the Internal Revenue Code or regulations.
(B) Identifying contractual terms—(1) Written agreement. The contractual terms, including the consequent allocation of risks, that are agreed to in writing before the transactions are entered into will be respected if such terms are consistent with the economic substance of the underlying transactions. In evaluating economic substance, greatest weight will be given to the actual conduct of the parties, and the respective legal rights of the parties (see, for example, § 1.482-4(f)(3) (Ownership of intangible property)). If the contractual terms are inconsistent with the economic substance of the underlying transaction, the district director may disregard such terms and impute terms that are consistent with the economic substance of the transaction.
(2) No written agreement. In the absence of a written agreement, the district director may impute a contractual agreement between the controlled taxpayers consistent with the economic substance of the transaction. In determining the economic substance of the transaction, greatest weight will be given to the actual conduct of the parties and their respective legal rights (see, for example, § 1.482-4(f)(3) (Ownership of intangible property)). For example, if, without a written agreement, a controlled taxpayer operates at full capacity and regularly sells all of its output to another member of its controlled group, the district director may impute a purchasing contract from the course of conduct of the controlled taxpayers, and determine that the producer bears little risk that the buyer will fail to purchase its full output. Further, if an established industry convention or usage of trade assigns a risk or resolves an issue, that convention or usage will be followed if the conduct of the taxpayers is consistent with it. See UCC 1-205. For example, unless otherwise agreed, payment generally is due at the time and place at which the buyer is to receive goods. See UCC 2-310.
(C) Examples. The following examples illustrate this paragraph (d)(3)(ii).
(iii) Risk—(A) Comparability. Determining the degree of comparability between controlled and uncontrolled transactions requires a comparison of the significant risks that could affect the prices that would be charged or paid, or the profit that would be earned, in the two transactions. Relevant risks to consider include—
(1) Market risks, including fluctuations in cost, demand, pricing, and inventory levels;
(2) Risks associated with the success or failure of research and development activities;
(3) Financial risks, including fluctuations in foreign currency rates of exchange and interest rates;
(4) Credit and collection risks;
(5) Product liability risks; and
(6) General business risks related to the ownership of property, plant, and equipment.
(B) Identification of taxpayer that bears risk. In general, the determination of which controlled taxpayer bears a particular risk will be made in accordance with the provisions of § 1.482-1(d)(3)(ii)(B) (Identifying contractual terms). Thus, the allocation of risks specified or implied by the taxpayer's contractual terms will generally be respected if it is consistent with the economic substance of the transaction. An allocation of risk between controlled taxpayers after the outcome of such risk is known or reasonably knowable lacks economic substance. In considering the economic substance of the transaction, the following facts are relevant—
(1) Whether the pattern of the controlled taxpayer's conduct over time is consistent with the purported allocation of risk between the controlled taxpayers; or where the pattern is changed, whether the relevant contractual arrangements have been modified accordingly;
(2) Whether a controlled taxpayer has the financial capacity to fund losses that might be expected to occur as the result of the assumption of a risk, or whether, at arm's length, another party to the controlled transaction would ultimately suffer the consequences of such losses; and
(3) The extent to which each controlled taxpayer exercises managerial or operational control over the business activities that directly influence the amount of income or loss realized. In arm's length dealings, parties ordinarily bear a greater share of those risks over which they have relatively more control.
(C) Examples. The following examples illustrate this paragraph (d)(3)(iii).
(iv) Economic conditions. Determining the degree of comparability between controlled and uncontrolled transactions requires a comparison of the significant economic conditions that could affect the prices that would be charged or paid, or the profit that would be earned in each of the transactions. These factors include—
(A) The similarity of geographic markets;
(B) The relative size of each market, and the extent of the overall economic development in each market;
(C) The level of the market (e.g., wholesale, retail, etc.);
(D) The relevant market shares for the products, properties, or services transferred or provided;
(E) The location-specific costs of the factors of production and distribution;
(F) The extent of competition in each market with regard to the property or services under review;
(G) The economic condition of the particular industry, including whether the market is in contraction or expansion; and
(H) The alternatives realistically available to the buyer and seller.
(v) Property or services. Evaluating the degree of comparability between controlled and uncontrolled transactions requires a comparison of the property or services transferred in the transactions. This comparison may include any intangible property that is embedded in tangible property or services being transferred (embedded intangibles). The comparability of the embedded intangibles will be analyzed using the factors listed in § 1.482-4(c)(2)(iii)(B)(1) (comparable intangible property). The relevance of product comparability in evaluating the relative reliability of the results will depend on the method applied. For guidance concerning the specific comparability considerations applicable to transfers of tangible and intangible property and performance of services, see §§ 1.482-3 through 1.482-6 and § 1.482-9; see also §§ 1.482-3(f), 1.482-4(f)(4), and 1.482-9(m), dealing with the coordination of intangible and tangible property and performance of services rules.
(4) Special circumstances—(i) Market share strategy. In certain circumstances, taxpayers may adopt strategies to enter new markets or to increase a product's share of an existing market (market share strategy). Such a strategy would be reflected by temporarily increased market development expenses or resale prices that are temporarily lower than the prices charged for comparable products in the same market. Whether or not the strategy is reflected in the transfer price depends on which party to the controlled transaction bears the costs of the pricing strategy. In any case, the effect of a market share strategy on a controlled transaction will be taken into account only if it can be shown that an uncontrolled taxpayer engaged in a comparable strategy under comparable circumstances for a comparable period of time, and the taxpayer provides documentation that substantiates the following—
(A) The costs incurred to implement the market share strategy are borne by the controlled taxpayer that would obtain the future profits that result from the strategy, and there is a reasonable likelihood that the strategy will result in future profits that reflect an appropriate return in relation to the costs incurred to implement it;
(B) The market share strategy is pursued only for a period of time that is reasonable, taking into consideration the industry and product in question; and
(C) The market share strategy, the related costs and expected returns, and any agreement between the controlled taxpayers to share the related costs, were established before the strategy was implemented.
(ii) Different geographic markets—(A) In general. Uncontrolled comparables ordinarily should be derived from the geographic market in which the controlled taxpayer operates, because there may be significant differences in economic conditions in different markets. If information from the same market is not available, an uncontrolled comparable derived from a different geographic market may be considered if adjustments are made to account for differences between the two markets. If information permitting adjustments for such differences is not available, then information derived from uncontrolled comparables in the most similar market for which reliable data is available may be used, but the extent of such differences may affect the reliability of the method for purposes of the best method rule. For this purpose, a geographic market is any geographic area in which the economic conditions for the relevant product or service are substantially the same, and may include multiple countries, depending on the economic conditions.
(B) Example. The following example illustrates this paragraph (d)(4)(ii).
(C) Location savings. If an uncontrolled taxpayer operates in a different geographic market than the controlled taxpayer, adjustments may be necessary to account for significant differences in costs attributable to the geographic markets. These adjustments must be based on the effect such differences would have on the consideration charged or paid in the controlled transaction given the relative competitive positions of buyers and sellers in each market. Thus, for example, the fact that the total costs of operating in a controlled manufacturer's geographic market are less than the total costs of operating in other markets ordinarily justifies higher profits to the manufacturer only if the cost differences would increase the profits of comparable uncontrolled manufacturers operating at arm's length, given the competitive positions of buyers and sellers in that market.
(D) Example. The following example illustrates the principles of this paragraph (d)(4)(ii)(C).
(iii) Transactions ordinarily not accepted as comparables—(A) In general. Transactions ordinarily will not constitute reliable measures of an arm's length result for purposes of this section if—
(1) They are not made in the ordinary course of business; or
(2) One of the principal purposes of the uncontrolled transaction was to establish an arm's length result with respect to the controlled transaction.
(B) Examples. The following examples illustrate the principle of this paragraph (d)(4)(iii).
(e) Arm's length range—(1) In general. In some cases, application of a pricing method will produce a single result that is the most reliable measure of an arm's length result. In other cases, application of a method may produce a number of results from which a range of reliable results may be derived. A taxpayer will not be subject to adjustment if its results fall within such range (arm's length range).
(2) Determination of arm's length range—(i) Single method. The arm's length range is ordinarily determined by applying a single pricing method selected under the best method rule to two or more uncontrolled transactions of similar comparability and reliability. Use of more than one method may be appropriate for the purposes described in paragraph (c)(2)(iii) of this section (Best method rule).
(ii) Selection of comparables. Uncontrolled comparables must be selected based upon the comparability criteria relevant to the method applied and must be sufficiently similar to the controlled transaction that they provide a reliable measure of an arm's length result. If material differences exist between the controlled and uncontrolled transactions, adjustments must be made to the results of the uncontrolled transaction if the effect of such differences on price or profits can be ascertained with sufficient accuracy to improve the reliability of the results. See § 1.482-1(d)(2) (Standard of comparability). The arm's length range will be derived only from those uncontrolled comparables that have, or through adjustments can be brought to, a similar level of comparability and reliability, and uncontrolled comparables that have a significantly lower level of comparability and reliability will not be used in establishing the arm's length range.
(iii) Comparables included in arm's length range—(A) In general. The arm's length range will consist of the results of all of the uncontrolled comparables that meet the following conditions: the information on the controlled transaction and the uncontrolled comparables is sufficiently complete that it is likely that all material differences have been identified, each such difference has a definite and reasonably ascertainable effect on price or profit, and an adjustment is made to eliminate the effect of each such difference.
(B) Adjustment of range to increase reliability. If there are no uncontrolled comparables described in paragraph (e)(2)(iii)(A) of this section, the arm's length range is derived from the results of all the uncontrolled comparables, selected pursuant to paragraph (e)(2)(ii) of this section, that achieve a similar level of comparability and reliability. In such cases the reliability of the analysis must be increased, where it is possible to do so, by adjusting the range through application of a valid statistical method to the results of all of the uncontrolled comparables so selected. The reliability of the analysis is increased when statistical methods are used to establish a range of results in which the limits of the range will be determined such that there is a 75 percent probability of a result falling above the lower end of the range and a 75 percent probability of a result falling below the upper end of the range. The interquartile range ordinarily provides an acceptable measure of this range; however a different statistical method may be applied if it provides a more reliable measure.
(C) Interquartile range. For purposes of this section, the interquartile range is the range from the 25th to the 75th percentile of the results derived from the uncontrolled comparables. For this purpose, the 25th percentile is the lowest result derived from an uncontrolled comparable such that at least 25 percent of the results are at or below the value of that result. However, if exactly 25 percent of the results are at or below a result, then the 25th percentile is equal to the average of that result and the next higher result derived from the uncontrolled comparables. The 75th percentile is determined analogously.
(3) Adjustment if taxpayer's results are outside arm's length range. If the results of a controlled transaction fall outside the arm's length range, the district director may make allocations that adjust the controlled taxpayer's result to any point within the arm's length range. If the interquartile range is used to determine the arm's length range, such adjustment will ordinarily be to the median of all the results. The median is the 50th percentile of the results, which is determined in a manner analogous to that described in paragraph (e)(2)(iii)(C) of this section (Interquartile range). In other cases, an adjustment normally will be made to the arithmetic mean of all the results. See § 1.482-1(f)(2)(iii)(D) for determination of an adjustment when a controlled taxpayer's result for a multiple year period falls outside an arm's length range consisting of the average results of uncontrolled comparables over the same period.
(4) Arm's length range not prerequisite to allocation. The rules of this paragraph (e) do not require that the district director establish an arm's length range prior to making an allocation under section 482. Thus, for example, the district director may properly propose an allocation on the basis of a single comparable uncontrolled price if the comparable uncontrolled price method, as described in § 1.482-3(b), has been properly applied. However, if the taxpayer subsequently demonstrates that the results claimed on its income tax return are within the range established by additional equally reliable comparable uncontrolled prices in a manner consistent with the requirements set forth in § 1.482-1(e)(2)(iii), then no allocation will be made.
(5) Examples. The following examples illustrate the principles of this paragraph (e).
(f) Scope of review—(1) In general. The authority to determine true taxable income extends to any case in which either by inadvertence or design the taxable income, in whole or in part, of a controlled taxpayer is other than it would have been had the taxpayer, in the conduct of its affairs, been dealing at arm's length with an uncontrolled taxpayer.
(i) Intent to evade or avoid tax not a prerequisite. In making allocations under section 482, the district director is not restricted to the case of improper accounting, to the case of a fraudulent, colorable, or sham transaction, or to the case of a device designed to reduce or avoid tax by shifting or distorting income, deductions, credits, or allowances.
(ii) Realization of income not a prerequisite—(A) In general. The district director may make an allocation under section 482 even if the income ultimately anticipated from a series of transactions has not been or is never realized. For example, if a controlled taxpayer sells a product at less than an arm's length price to a related taxpayer in one taxable year and the second controlled taxpayer resells the product to an unrelated party in the next taxable year, the district director may make an appropriate allocation to reflect an arm's length price for the sale of the product in the first taxable year, even though the second controlled taxpayer had not realized any gross income from the resale of the product in the first year. Similarly, if a controlled taxpayer lends money to a related taxpayer in a taxable year, the district director may make an appropriate allocation to reflect an arm's length charge for interest during such taxable year even if the second controlled taxpayer does not realize income during such year. Finally, even if two controlled taxpayers realize an overall loss that is attributable to a particular controlled transaction, an allocation under section 482 is not precluded.
(B) Example. The following example illustrates this paragraph (f)(1)(ii).
(iii) Nonrecognition provisions may not bar allocation—(A) In general. If necessary to prevent the avoidance of taxes or to clearly reflect income, the district director may make an allocation under section 482 with respect to transactions that otherwise qualify for nonrecognition of gain or loss under applicable provisions of the Internal Revenue Code (such as section 351 or 1031).
(B) Example. The following example illustrates this paragraph (f)(1)(iii).
(iv) Consolidated returns. Section 482 and the regulations thereunder apply to all controlled taxpayers, whether the controlled taxpayer files a separate or consolidated U.S. income tax return. If a controlled taxpayer files a separate return, its true separate taxable income will be determined. If a controlled taxpayer is a party to a consolidated return, the true consolidated taxable income of the affiliated group and the true separate taxable income of the controlled taxpayer must be determined consistently with the principles of a consolidated return.
(2) Rules relating to determination of true taxable income. The following rules must be taken into account in determining the true taxable income of a controlled taxpayer.
(i)(A) through (E) [Reserved]. For further guidance see § 1.482-1T(f)(2)(i)(A) through (E).
(ii) Allocation based on taxpayer's actual transactions—(A) In general. The Commissioner will evaluate the results of a transaction as actually structured by the taxpayer unless its structure lacks economic substance. However, the Commissioner may consider the alternatives available to the taxpayer in determining whether the terms of the controlled transaction would be acceptable to an uncontrolled taxpayer faced with the same alternatives and operating under comparable circumstances. In such cases the Commissioner may adjust the consideration charged in the controlled transaction based on the cost or profit of an alternative as adjusted to account for material differences between the alternative and the controlled transaction, but will not restructure the transaction as if the alternative had been adopted by the taxpayer. See paragraph (d)(3) of this section (factors for determining comparability; contractual terms and risk); §§ 1.482-3(e), 1.482-4(d), and 1.482-9(h) (unspecified methods).
(B) [Reserved]. For further guidance see § 1.482-1T(f)(2)(ii)(B).
(iii) Multiple year data—(A) In general. The results of a controlled transaction ordinarily will be compared with the results of uncontrolled comparables occurring in the taxable year under review. It may be appropriate, however, to consider data relating to the uncontrolled comparables or the controlled taxpayer for one or more years before or after the year under review. If data relating to uncontrolled comparables from multiple years is used, data relating to the controlled taxpayer for the same years ordinarily must be considered. However, if such data is not available, reliable data from other years, as adjusted under paragraph (d)(2) (Standard of comparability) of this section may be used.
(B) Circumstances warranting consideration of multiple year data. The extent to which it is appropriate to consider multiple year data depends on the method being applied and the issue being addressed. Circumstances that may warrant consideration of data from multiple years include the extent to which complete and accurate data are available for the taxable year under review, the effect of business cycles in the controlled taxpayer's industry, or the effects of life cycles of the product or intangible property being examined. Data from one or more years before or after the taxable year under review must ordinarily be considered for purposes of applying the provisions of paragraph (d)(3)(iii) of this section (risk), paragraph (d)(4)(i) of this section (market share strategy), § 1.482-4(f)(2) (periodic adjustments), § 1.482-5 (comparable profits method), § 1.482-9(f) (comparable profits method for services), and § 1.482-9(i) (contingent-payment contractual terms for services). On the other hand, multiple year data ordinarily will not be considered for purposes of applying the comparable uncontrolled price method of § 1.482-3(b) or the comparable uncontrolled services price method of § 1.482-9(c) (except to the extent that risk or market share strategy issues are present).
(C) Comparable effect over comparable period. Data from multiple years may be considered to determine whether the same economic conditions that caused the controlled taxpayer's results had a comparable effect over a comparable period of time on the uncontrolled comparables that establish the arm's length range. For example, given that uncontrolled taxpayers enter into transactions with the ultimate expectation of earning a profit, persistent losses among controlled taxpayers may be an indication of non-arm's length dealings. Thus, if a controlled taxpayer that realizes a loss with respect to a controlled transaction seeks to demonstrate that the loss is within the arm's length range, the district director may take into account data from taxable years other than the taxable year of the transaction to determine whether the loss was attributable to arm's length dealings. The rule of this paragraph (f)(2)(iii)(C) is illustrated by Example 3 of paragraph (f)(2)(iii)(E) of this section.
(D) Applications of methods using multiple year averages. If a comparison of a controlled taxpayer's average result over a multiple year period with the average results of uncontrolled comparables over the same period would reduce the effect of short-term variations that may be unrelated to transfer pricing, it may be appropriate to establish a range derived from the average results of uncontrolled comparables over a multiple year period to determine if an adjustment should be made. In such a case the district director may make an adjustment if the controlled taxpayer's average result for the multiple year period is not within such range. Such a range must be determined in accordance with § 1.482-1(e) (Arm's length range). An adjustment in such a case ordinarily will be equal to the difference, if any, between the controlled taxpayer's result for the taxable year and the mid-point of the uncontrolled comparables' results for that year. If the interquartile range is used to determine the range of average results for the multiple year period, such adjustment will ordinarily be made to the median of all the results of the uncontrolled comparables for the taxable year. See Example 2 of § 1.482-5(e). In other cases, the adjustment normally will be made to the arithmetic mean of all the results of the uncontrolled comparables for the taxable year. However, an adjustment will be made only to the extent that it would move the controlled taxpayer's multiple year average closer to the arm's length range for the multiple year period or to any point within such range. In determining a controlled taxpayer's average result for a multiple year period, adjustments made under this section for prior years will be taken into account only if such adjustments have been finally determined, as described in § 1.482-1(g)(2)(iii). See Example 3 of § 1.482-5(e).
(E) Examples. The following examples, in which S and P are controlled taxpayers, illustrate this paragraph (f)(2)(iii). Examples 1 and 4 also illustrate the principle of the arm's length range of paragraph (e) of this section.
(iv) Product lines and statistical techniques. The methods described in §§ 1.482-2 through 1.482-6 are generally stated in terms of individual transactions. However, because a taxpayer may have controlled transactions involving many different products, or many separate transactions involving the same product, it may be impractical to analyze every individual transaction to determine its arm's length price. In such cases, it is permissible to evaluate the arm's length results by applying the appropriate methods to the overall results for product lines or other groupings. In addition, the arm's length results of all related party transactions entered into by a controlled taxpayer may be evaluated by employing sampling and other valid statistical techniques.
(v) Allocations apply to results, not methods—(A) In general. In evaluating whether the result of a controlled transaction is arm's length, it is not necessary for the district director to determine whether the method or procedure that a controlled taxpayer employs to set the terms for its controlled transactions corresponds to the method or procedure that might have been used by a taxpayer dealing at arm's length with an uncontrolled taxpayer. Rather, the district director will evaluate the result achieved rather than the method the taxpayer used to determine its prices.
(B) Example. The following example illustrates this paragraph (f)(2)(v).
(g) Collateral adjustments with respect to allocations under section 482—(1) In general. The district director will take into account appropriate collateral adjustments with respect to allocations under section 482. Appropriate collateral adjustments may include correlative allocations, conforming adjustments, and setoffs, as described in this paragraph (g).
(2) Correlative allocations—(i) In general. When the district director makes an allocation under section 482 (referred to in this paragraph (g)(2) as the primary allocation), appropriate correlative allocations will also be made with respect to any other member of the group affected by the allocation. Thus, if the district director makes an allocation of income, the district director will not only increase the income of one member of the group, but correspondingly decrease the income of the other member. In addition, where appropriate, the district director may make such further correlative allocations as may be required by the initial correlative allocation.
(ii) Manner of carrying out correlative allocation. The district director will furnish to the taxpayer with respect to which the primary allocation is made a written statement of the amount and nature of the correlative allocation. The correlative allocation must be reflected in the documentation of the other member of the group that is maintained for U.S. tax purposes, without regard to whether it affects the U.S. income tax liability of the other member for any open year. In some circumstances the allocation will have an immediate U.S. tax effect, by changing the taxable income computation of the other member (or the taxable income computation of a shareholder of the other member, for example, under the provisions of subpart F of the Internal Revenue Code). Alternatively, the correlative allocation may not be reflected on any U.S. tax return until a later year, for example when a dividend is paid.
(iii) Events triggering correlative allocation. For purposes of this paragraph (g)(2), a primary allocation will not be considered to have been made (and therefore, correlative allocations are not required to be made) until the date of a final determination with respect to the allocation under section 482. For this purpose, a final determination includes—
(A) Assessment of tax following execution by the taxpayer of a Form 870 (Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment) with respect to such allocation;
(B) Acceptance of a Form 870-AD (Offer of Waiver of Restriction on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment);
(C) Payment of the deficiency;
(D) Stipulation in the Tax Court of the United States; or
(E) Final determination of tax liability by offer-in-compromise, closing agreement, or final resolution (determined under the principles of section 7481) of a judicial proceeding.
(iv) Examples. The following examples illustrate this paragraph (g)(2). In each example, X and Y are members of the same group of controlled taxpayers and each regularly computes its income on a calendar year basis.
(3) Adjustments to conform accounts to reflect section 482 allocations—(i) In general. Appropriate adjustments must be made to conform a taxpayer's accounts to reflect allocations made under section 482. Such adjustments may include the treatment of an allocated amount as a dividend or a capital contribution (as appropriate), or, in appropriate cases, pursuant to such applicable revenue procedures as may be provided by the Commissioner (see § 601.601(d)(2) of this chapter), repayment of the allocated amount without further income tax consequences.
(ii) Example. The following example illustrates the principles of this paragraph (g)(3).
(4) Setoffs—(i) In general. If an allocation is made under section 482 with respect to a transaction between controlled taxpayers, the Commissioner will take into account the effect of any other non-arm's length transaction between the same controlled taxpayers in the same taxable year which will result in a setoff against the original section 482 allocation. Such setoff, however, will be taken into account only if the requirements of paragraph (g)(4)(ii) of this section are satisfied. If the effect of the setoff is to change the characterization or source of the income or deductions, or otherwise distort taxable income, in such a manner as to affect the U.S. tax liability of any member, adjustments will be made to reflect the correct amount of each category of income or deductions. For purposes of this setoff provision, the term arm's length refers to the amount defined in paragraph (b) of this section (arm's length standard), without regard to the rules in § 1.482-2(a) that treat certain interest rates as arm's length rates of interest.
(ii) Requirements. The district director will take a setoff into account only if the taxpayer—
(A) Establishes that the transaction that is the basis of the setoff was not at arm's length and the amount of the appropriate arm's length charge;
(B) Documents, pursuant to paragraph (g)(2) of this section, all correlative adjustments resulting from the proposed setoff; and
(C) Notifies the district director of the basis of any claimed setoff within 30 days after the earlier of the date of a letter by which the district director transmits an examination report notifying the taxpayer of proposed adjustments or the date of the issuance of the notice of deficiency.
(iii) Examples. The following examples illustrate this paragraph (g)(4).
(h) Special rules—(1) Small taxpayer safe harbor. [Reserved]
(2) Effect of foreign legal restrictions—(i) In general. The district director will take into account the effect of a foreign legal restriction to the extent that such restriction affects the results of transactions at arm's length. Thus, a foreign legal restriction will be taken into account only to the extent that it is shown that the restriction affected an uncontrolled taxpayer under comparable circumstances for a comparable period of time. In the absence of evidence indicating the effect of the foreign legal restriction on uncontrolled taxpayers, the restriction will be taken into account only to the extent provided in paragraphs (h)(2) (iii) and (iv) of this section (Deferred income method of accounting).
(ii) Applicable legal restrictions. Foreign legal restrictions (whether temporary or permanent) will be taken into account for purposes of this paragraph (h)(2) only if, and so long as, the conditions set forth in paragraphs (h)(2)(ii) (A) through (D) of this section are met.
(A) The restrictions are publicly promulgated, generally applicable to all similarly situated persons (both controlled and uncontrolled), and not imposed as part of a commercial transaction between the taxpayer and the foreign sovereign;
(B) The taxpayer (or other member of the controlled group with respect to which the restrictions apply) has exhausted all remedies prescribed by foreign law or practice for obtaining a waiver of such restrictions (other than remedies that would have a negligible prospect of success if pursued);
(C) The restrictions expressly prevented the payment or receipt, in any form, of part or all of the arm's length amount that would otherwise be required under section 482 (for example, a restriction that applies only to the deductibility of an expense for tax purposes is not a restriction on payment or receipt for this purpose); and
(D) The related parties subject to the restriction did not engage in any arrangement with controlled or uncontrolled parties that had the effect of circumventing the restriction, and have not otherwise violated the restriction in any material respect.
(iii) Requirement for electing the deferred income method of accounting. If a foreign legal restriction prevents the payment or receipt of part or all of the arm's length amount that is due with respect to a controlled transaction, the restricted amount may be treated as deferrable if the following requirements are met—
(A) The controlled taxpayer establishes to the satisfaction of the district director that the payment or receipt of the arm's length amount was prevented because of a foreign legal restriction and circumstances described in paragraph (h)(2)(ii) of this section; and
(B) The controlled taxpayer whose U.S. tax liability may be affected by the foreign legal restriction elects the deferred income method of accounting, as described in paragraph (h)(2)(iv) of this section, on a written statement attached to a timely U.S. income tax return (or an amended return) filed before the IRS first contacts any member of the controlled group concerning an examination of the return for the taxable year to which the foreign legal restriction applies. A written statement furnished by a taxpayer subject to the Coordinated Examination Program will be considered an amended return for purposes of this paragraph (h)(2)(iii)(B) if it satisfies the requirements of a qualified amended return for purposes of § 1.6664-2(c)(3) as set forth in those regulations or as the Commissioner may prescribe by applicable revenue procedures. The election statement must identify the affected transactions, the parties to the transactions, and the applicable foreign legal restrictions.
(iv) Deferred income method of accounting. If the requirements of paragraph (h)(2)(ii) of this section are satisfied, any portion of the arm's length amount, the payment or receipt of which is prevented because of applicable foreign legal restrictions, will be treated as deferrable until payment or receipt of the relevant item ceases to be prevented by the foreign legal restriction. For purposes of the deferred income method of accounting under this paragraph (h)(2)(iv), deductions (including the cost or other basis of inventory and other assets sold or exchanged) and credits properly chargeable against any amount so deferred, are subject to deferral under the provisions of § 1.461- 1(a)(4). In addition, income is deferrable under this deferred income method of accounting only to the extent that it exceeds the related deductions already claimed in open taxable years to which the foreign legal restriction applied.
(v) Examples. The following examples, in which Sub is a Country FC subsidiary of U.S. corporation, Parent, illustrate this paragraph (h)(2).
(3) Coordination with section 936—(i) Cost sharing under section 936. If a possessions corporation makes an election under section 936(h)(5)(C)(i)(I), the corporation must make a section 936 cost sharing payment that is at least equal to the payment that would be required under section 482 if the electing corporation were a foreign corporation. In determining the payment that would be required under section 482 for this purpose, the provisions of §§ 1.482-1 and 1.482-4 will be applied, and to the extent relevant to the valuation of intangibles, §§ 1.482-5 and 1.482-6 will be applied. The provisions of section 936(h)(5)(C)(i)(II) (Effect of Election—electing corporation treated as owner of intangible property) do not apply until the payment that would be required under section 482 has been determined.
(ii) Use of terms. A cost sharing payment, for the purposes of section 936(h)(5)(C)(i)(I), is calculated using the provisions of section 936 and the regulations thereunder and the provisions of this paragraph (h)(3). The provisions relating to cost sharing under section 482 do not apply to payments made pursuant to an election under section 936(h)(5)(C)(i)(I). Similarly, a profit split payment, for the purposes of section 936(h)(5)(C)(ii)(I), is calculated using the provisions of section 936 and the regulations thereunder, not section 482 and the regulations thereunder.
(i) Definitions. The definitions set forth in paragraphs (i)(1) through (i)(10) of this section apply to this section and §§ 1.482-2 through 1.482-9.
(1) Organization includes an organization of any kind, whether a sole proprietorship, a partnership, a trust, an estate, an association, or a corporation (as each is defined or understood in the Internal Revenue Code or the regulations thereunder), irrespective of the place of organization, operation, or conduct of the trade or business, and regardless of whether it is a domestic or foreign organization, whether it is an exempt organization, or whether it is a member of an affiliated group that files a consolidated U.S. income tax return, or a member of an affiliated group that does not file a consolidated U.S. income tax return.
(2) Trade or business includes a trade or business activity of any kind, regardless of whether or where organized, whether owned individually or otherwise, and regardless of the place of operation. Employment for compensation will constitute a separate trade or business from the employing trade or business.
(3) Taxpayer means any person, organization, trade or business, whether or not subject to any internal revenue tax.
(4) Controlled includes any kind of control, direct or indirect, whether legally enforceable or not, and however exercisable or exercised, including control resulting from the actions of two or more taxpayers acting in concert or with a common goal or purpose. It is the reality of the control that is decisive, not its form or the mode of its exercise. A presumption of control arises if income or deductions have been arbitrarily shifted.
(5) Controlled taxpayer means any one of two or more taxpayers owned or controlled directly or indirectly by the same interests, and includes the taxpayer that owns or controls the other taxpayers. Uncontrolled taxpayer means any one of two or more taxpayers not owned or controlled directly or indirectly by the same interests.
(6) Group, controlled group, and group of controlled taxpayers mean the taxpayers owned or controlled directly or indirectly by the same interests.
(7) Transaction means any sale, assignment, lease, license, loan, advance, contribution, or any other transfer of any interest in or a right to use any property (whether tangible or intangible, real or personal) or money, however such transaction is effected, and whether or not the terms of such transaction are formally documented. A transaction also includes the performance of any services for the benefit of, or on behalf of, another taxpayer.
(8) Controlled transaction or controlled transfer means any transaction or transfer between two or more members of the same group of controlled taxpayers. The term uncontrolled transaction means any transaction between two or more taxpayers that are not members of the same group of controlled taxpayers.
(9) True taxable income means, in the case of a controlled taxpayer, the taxable income that would have resulted had it dealt with the other member or members of the group at arm's length. It does not mean the taxable income resulting to the controlled taxpayer by reason of the particular contract, transaction, or arrangement the controlled taxpayer chose to make (even though such contract, transaction, or arrangement is legally binding upon the parties thereto).
(10) Uncontrolled comparable means the uncontrolled transaction or uncontrolled taxpayer that is compared with a controlled transaction or taxpayer under any applicable pricing methodology. Thus, for example, under the comparable profits method, an uncontrolled comparable is any uncontrolled taxpayer from which data is used to establish a comparable operating profit.
(j) Effective dates—(1) The regulations in this are generally effective for taxable years beginning after October 6, 1994.
(2) Taxpayers may elect to apply retroactively all of the provisions of these regulations for any open taxable year. Such election will be effective for the year of the election and all subsequent taxable years.
(3) Although these regulations are generally effective for taxable years as stated, the final sentence of section 482 (requiring that the income with respect to transfers or licenses of intangible property be commensurate with the income attributable to the intangible) is generally effective for taxable years beginning after December 31, 1986. For the period prior to the effective date of these regulations, the final sentence of section 482 must be applied using any reasonable method not inconsistent with the statute. The IRS considers a method that applies these regulations or their general principles to be a reasonable method.
(4) These regulations will not apply with respect to transfers made or licenses granted to foreign persons before November 17, 1985, or before August 17, 1986, for transfers or licenses to others. Nevertheless, they will apply with respect to transfers or licenses before such dates if, with respect to property transferred pursuant to an earlier and continuing transfer agreement, such property was not in existence or owned by the taxpayer on such date.
(5) The last sentences of paragraphs (b)(2)(i) and (c)(1) of this section and of paragraph (c)(2)(iv) of § 1.482-5 apply for taxable years beginning on or after August 26, 2003.
(6)(i) The provisions of paragraphs (a)(1), (d)(3)(ii)(C) Example 3, Example 4, Example 5, and Example 6, (d)(3)(v), (f)(2)(ii)(A), (f)(2)(iii)(B), (g)(4)(i), (g)(4)(iii), and (i) of this section are generally applicable for taxable years beginning after July 31, 2009. The provision of paragraph (b)(2)(iii) of this section is generally applicable on January 5, 2009.
(ii) A person may elect to apply the provisions of paragraphs (a)(1), (b)(2)(i), (d)(3)(ii)(C) Example 3, Example 4, Example 5, and Example 6, (d)(3)(v), (f)(2)(ii)(A), (f)(2)(iii)(B), (g)(4)(i), (g)(4)(iii), and (i) of this section to earlier taxable years in accordance with the rules set forth in § 1.482-9(n)(2).
(7) [Reserved]. For further guidance see § 1.482-1T(j)(7).
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Treas. Reg. §1.482-1(a)In general—(1) Purpose and scope.
In general—(1) Purpose and scope. The purpose of section 482 is to ensure that taxpayers clearly reflect income attributable to controlled transactions and to prevent the avoidance of taxes with respect to such transactions. Section 482 places a controlled taxpayer on a tax parity with an uncontrolled taxpayer by determining the true taxable income of the controlled taxpayer. This section sets forth general principles and guidelines to be followed under section 482. Section 1.482-2 provides rules for the determination of the true taxable income of controlled taxpayers in specific situations, including controlled transactions involving loans or advances or the use of tangible property. Sections 1.482-3 through 1.482-6 provide rules for the determination of the true taxable income of controlled taxpayers in cases involving the transfer of property. Section 1.482-7T sets forth the cost sharing provisions applicable to taxable years beginning on or after January 5, 2009. Section 1.482-8 provides examples illustrating the application of the best method rule. Finally, § 1.482-9 provides rules for the determination of the true taxable income of controlled taxpayers in cases involving the performance of services.
(2) Authority to make allocations. The district director may make allocations between or among the members of a controlled group if a controlled taxpayer has not reported its true taxable income. In such case, the district director may allocate income, deductions, credits, allowances, basis, or any other item or element affecting taxable income (referred to as allocations). The appropriate allocation may take the form of an increase or decrease in any relevant amount.
(3) Taxpayer's use of section 482. If necessary to reflect an arm's length result, a controlled taxpayer may report on a timely filed U.S. income tax return (including extensions) the results of its controlled transactions based upon prices different from those actually charged. Except as provided in this paragraph, section 482 grants no other right to a controlled taxpayer to apply the provisions of section 482 at will or to compel the district director to apply such provisions. Therefore, no untimely or amended returns will be permitted to decrease taxable income based on allocations or other adjustments with respect to controlled transactions. See § 1.6662-6T(a)(2) or successor regulations.
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Treas. Reg. §1.482-1(b)Arm's length standard—(1) In general.
Arm's length standard—(1) In general. In determining the true taxable income of a controlled taxpayer, the standard to be applied in every case is that of a taxpayer dealing at arm's length with an uncontrolled taxpayer. A controlled transaction meets the arm's length standard if the results of the transaction are consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances (arm's length result). However, because identical transactions can rarely be located, whether a transaction produces an arm's length result generally will be determined by reference to the results of comparable transactions under comparable circumstances. See § 1.482-1(d)(2) (Standard of comparability). Evaluation of whether a controlled transaction produces an arm's length result is made pursuant to a method selected under the best method rule described in § 1.482-1(c).
(2) Arm's length methods—(i) Methods. Sections 1.482-2 through 1.482-7 and 1.482-9 provide specific methods to be used to evaluate whether transactions between or among members of the controlled group satisfy the arm's length standard, and if they do not, to determine the arm's length result. This section provides general principles applicable in determining arm's length results of such controlled transactions, but do not provide methods, for which reference must be made to those other sections in accordance with paragraphs (b)(2)(ii) and (iii) of this section. Section 1.482-7 provides the specific methods to be used to evaluate whether a cost sharing arrangement as defined in § 1.482-7 produces results consistent with an arm's length result.
(ii) Selection of category of method applicable to transaction. The methods listed in § 1.482-2 apply to different types of transactions, such as transfers of property, services, loans or advances, and rentals. Accordingly, the method or methods most appropriate to the calculation of arm's length results for controlled transactions must be selected, and different methods may be applied to interrelated transactions if such transactions are most reliably evaluated on a separate basis. For example, if services are provided in connection with the transfer of property, it may be appropriate to separately apply the methods applicable to services and property in order to determine an arm's length result. But see § 1.482-1(f)(2)(i) (Aggregation of transactions). In addition, other applicable provisions of the Code may affect the characterization of a transaction, and therefore affect the methods applicable under section 482. See for example section 467.
(iii) Coordination of methods applicable to certain intangible development arrangements. Section 1.482-7 provides the specific methods to be used to determine arm's length results of controlled transactions in connection with a cost sharing arrangement as defined in § 1.482-7. Sections 1.482-4 and 1.482-9, as appropriate, provide the specific methods to be used to determine arm's length results of arrangements, including partnerships, for sharing the costs and risks of developing intangibles, other than a cost sharing arrangement covered by § 1.482-7. See also §§ 1.482-4(g) (Coordination with rules governing cost sharing arrangements) and 1.482-9(m)(3) (Coordination with rules governing cost sharing arrangements).
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Treas. Reg. §1.482-1(c)Best method rule—(1) In general.
Best method rule—(1) In general. The arm's length result of a controlled transaction must be determined under the method that, under the facts and circumstances, provides the most reliable measure of an arm's length result. Thus, there is no strict priority of methods, and no method will invariably be considered to be more reliable than others. An arm's length result may be determined under any method without establishing the inapplicability of another method, but if another method subsequently is shown to produce a more reliable measure of an arm's length result, such other method must be used. Similarly, if two or more applications of a single method provide inconsistent results, the arm's length result must be determined under the application that, under the facts and circumstances, provides the most reliable measure of an arm's length result. See § 1.482-8 for examples of the application of the best method rule. See § 1.482-7 for the applicable methods in the case of a cost sharing arrangement.
(2) Determining the best method. Data based on the results of transactions between unrelated parties provides the most objective basis for determining whether the results of a controlled transaction are arm's length. Thus, in determining which of two or more available methods (or applications of a single method) provides the most reliable measure of an arm's length result, the two primary factors to take into account are the degree of comparability between the controlled transaction (or taxpayer) and any uncontrolled comparables, and the quality of the data and assumptions used in the analysis. In addition, in certain circumstances, it also may be relevant to consider whether the results of an analysis are consistent with the results of an analysis under another method. These factors are explained in paragraphs (c)(2)(i), (ii), and (iii) of this section.
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Treas. Reg. §1.482-1(d)Comparability—(1) In general.
Comparability—(1) In general. Whether a controlled transaction produces an arm's length result is generally evaluated by comparing the results of that transaction to results realized by uncontrolled taxpayers engaged in comparable transactions under comparable circumstances. For this purpose, the comparability of transactions and circumstances must be evaluated considering all factors that could affect prices or profits in arm's length dealings (comparability factors). While a specific comparability factor may be of particular importance in applying a method, each method requires analysis of all of the factors that affect comparability under that method. Such factors include the following—
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Treas. Reg. §1.482-1(e)Arm's length range—(1) In general.
Arm's length range—(1) In general. In some cases, application of a pricing method will produce a single result that is the most reliable measure of an arm's length result. In other cases, application of a method may produce a number of results from which a range of reliable results may be derived. A taxpayer will not be subject to adjustment if its results fall within such range (arm's length range).
(2) Determination of arm's length range—(i) Single method. The arm's length range is ordinarily determined by applying a single pricing method selected under the best method rule to two or more uncontrolled transactions of similar comparability and reliability. Use of more than one method may be appropriate for the purposes described in paragraph (c)(2)(iii) of this section (Best method rule).
(ii) Selection of comparables. Uncontrolled comparables must be selected based upon the comparability criteria relevant to the method applied and must be sufficiently similar to the controlled transaction that they provide a reliable measure of an arm's length result. If material differences exist between the controlled and uncontrolled transactions, adjustments must be made to the results of the uncontrolled transaction if the effect of such differences on price or profits can be ascertained with sufficient accuracy to improve the reliability of the results. See § 1.482-1(d)(2) (Standard of comparability). The arm's length range will be derived only from those uncontrolled comparables that have, or through adjustments can be brought to, a similar level of comparability and reliability, and uncontrolled comparables that have a significantly lower level of comparability and reliability will not be used in establishing the arm's length range.
(iii) Comparables included in arm's length range—(A) In general. The arm's length range will consist of the results of all of the uncontrolled comparables that meet the following conditions: the information on the controlled transaction and the uncontrolled comparables is sufficiently complete that it is likely that all material differences have been identified, each such difference has a definite and reasonably ascertainable effect on price or profit, and an adjustment is made to eliminate the effect of each such difference.
(B) Adjustment of range to increase reliability. If there are no uncontrolled comparables described in paragraph (e)(2)(iii)(A) of this section, the arm's length range is derived from the results of all the uncontrolled comparables, selected pursuant to paragraph (e)(2)(ii) of this section, that achieve a similar level of comparability and reliability. In such cases the reliability of the analysis must be increased, where it is possible to do so, by adjusting the range through application of a valid statistical method to the results of all of the uncontrolled comparables so selected. The reliability of the analysis is increased when statistical methods are used to establish a range of results in which the limits of the range will be determined such that there is a 75 percent probability of a result falling above the lower end of the range and a 75 percent probability of a result falling below the upper end of the range. The interquartile range ordinarily provides an acceptable measure of this range; however a different statistical method may be applied if it provides a more reliable measure.
(C) Interquartile range. For purposes of this section, the interquartile range is the range from the 25th to the 75th percentile of the results derived from the uncontrolled comparables. For this purpose, the 25th percentile is the lowest result derived from an uncontrolled comparable such that at least 25 percent of the results are at or below the value of that result. However, if exactly 25 percent of the results are at or below a result, then the 25th percentile is equal to the average of that result and the next higher result derived from the uncontrolled comparables. The 75th percentile is determined analogously.
(3) Adjustment if taxpayer's results are outside arm's length range. If the results of a controlled transaction fall outside the arm's length range, the district director may make allocations that adjust the controlled taxpayer's result to any point within the arm's length range. If the interquartile range is used to determine the arm's length range, such adjustment will ordinarily be to the median of all the results. The median is the 50th percentile of the results, which is determined in a manner analogous to that described in paragraph (e)(2)(iii)(C) of this section (Interquartile range). In other cases, an adjustment normally will be made to the arithmetic mean of all the results. See § 1.482-1(f)(2)(iii)(D) for determination of an adjustment when a controlled taxpayer's result for a multiple year period falls outside an arm's length range consisting of the average results of uncontrolled comparables over the same period.
(4) Arm's length range not prerequisite to allocation. The rules of this paragraph (e) do not require that the district director establish an arm's length range prior to making an allocation under section 482. Thus, for example, the district director may properly propose an allocation on the basis of a single comparable uncontrolled price if the comparable uncontrolled price method, as described in § 1.482-3(b), has been properly applied. However, if the taxpayer subsequently demonstrates that the results claimed on its income tax return are within the range established by additional equally reliable comparable uncontrolled prices in a manner consistent with the requirements set forth in § 1.482-1(e)(2)(iii), then no allocation will be made.
(5) Examples. The following examples illustrate the principles of this paragraph (e).
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Treas. Reg. §1.482-1(f)Scope of review—(1) In general.
Scope of review—(1) In general. The authority to determine true taxable income extends to any case in which either by inadvertence or design the taxable income, in whole or in part, of a controlled taxpayer is other than it would have been had the taxpayer, in the conduct of its affairs, been dealing at arm's length with an uncontrolled taxpayer.
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Treas. Reg. §1.482-1(g)Collateral adjustments with respect to allocations under section 482—(1) In general.
Collateral adjustments with respect to allocations under section 482—(1) In general. The district director will take into account appropriate collateral adjustments with respect to allocations under section 482. Appropriate collateral adjustments may include correlative allocations, conforming adjustments, and setoffs, as described in this paragraph (g).
(2) Correlative allocations—(i) In general. When the district director makes an allocation under section 482 (referred to in this paragraph (g)(2) as the primary allocation), appropriate correlative allocations will also be made with respect to any other member of the group affected by the allocation. Thus, if the district director makes an allocation of income, the district director will not only increase the income of one member of the group, but correspondingly decrease the income of the other member. In addition, where appropriate, the district director may make such further correlative allocations as may be required by the initial correlative allocation.
(ii) Manner of carrying out correlative allocation. The district director will furnish to the taxpayer with respect to which the primary allocation is made a written statement of the amount and nature of the correlative allocation. The correlative allocation must be reflected in the documentation of the other member of the group that is maintained for U.S. tax purposes, without regard to whether it affects the U.S. income tax liability of the other member for any open year. In some circumstances the allocation will have an immediate U.S. tax effect, by changing the taxable income computation of the other member (or the taxable income computation of a shareholder of the other member, for example, under the provisions of subpart F of the Internal Revenue Code). Alternatively, the correlative allocation may not be reflected on any U.S. tax return until a later year, for example when a dividend is paid.
(iii) Events triggering correlative allocation. For purposes of this paragraph (g)(2), a primary allocation will not be considered to have been made (and therefore, correlative allocations are not required to be made) until the date of a final determination with respect to the allocation under section 482. For this purpose, a final determination includes—
(A) Assessment of tax following execution by the taxpayer of a Form 870 (Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment) with respect to such allocation;
(B) Acceptance of a Form 870-AD (Offer of Waiver of Restriction on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment);
(C) Payment of the deficiency;
(D) Stipulation in the Tax Court of the United States; or
(E) Final determination of tax liability by offer-in-compromise, closing agreement, or final resolution (determined under the principles of section 7481) of a judicial proceeding.
(iv) Examples. The following examples illustrate this paragraph (g)(2). In each example, X and Y are members of the same group of controlled taxpayers and each regularly computes its income on a calendar year basis.
(3) Adjustments to conform accounts to reflect section 482 allocations—(i) In general. Appropriate adjustments must be made to conform a taxpayer's accounts to reflect allocations made under section 482. Such adjustments may include the treatment of an allocated amount as a dividend or a capital contribution (as appropriate), or, in appropriate cases, pursuant to such applicable revenue procedures as may be provided by the Commissioner (see § 601.601(d)(2) of this chapter), repayment of the allocated amount without further income tax consequences.
(ii) Example. The following example illustrates the principles of this paragraph (g)(3).
(4) Setoffs—(i) In general. If an allocation is made under section 482 with respect to a transaction between controlled taxpayers, the Commissioner will take into account the effect of any other non-arm's length transaction between the same controlled taxpayers in the same taxable year which will result in a setoff against the original section 482 allocation. Such setoff, however, will be taken into account only if the requirements of paragraph (g)(4)(ii) of this section are satisfied. If the effect of the setoff is to change the characterization or source of the income or deductions, or otherwise distort taxable income, in such a manner as to affect the U.S. tax liability of any member, adjustments will be made to reflect the correct amount of each category of income or deductions. For purposes of this setoff provision, the term arm's length refers to the amount defined in paragraph (b) of this section (arm's length standard), without regard to the rules in § 1.482-2(a) that treat certain interest rates as arm's length rates of interest.
(ii) Requirements. The district director will take a setoff into account only if the taxpayer—
(A) Establishes that the transaction that is the basis of the setoff was not at arm's length and the amount of the appropriate arm's length charge;
(B) Documents, pursuant to paragraph (g)(2) of this section, all correlative adjustments resulting from the proposed setoff; and
(C) Notifies the district director of the basis of any claimed setoff within 30 days after the earlier of the date of a letter by which the district director transmits an examination report notifying the taxpayer of proposed adjustments or the date of the issuance of the notice of deficiency.
(iii) Examples. The following examples illustrate this paragraph (g)(4).
378 Citing Cases
hat Sehati Jewelry Couture (SJC) failed to report $135,466 of income from gold sales in 2013, (3) a $29,225 method of accounting adjustment respondent made with respect to Barukh Group (Barukh) for 2012, (4) respondent’s determinations to reallocate $80,000 and $120,000 of income from SJC to Barukh pursuant to section 482 for 2013 and 2014, respectively, or (5) respondent’s determinations to disallow deductions for certain alleged expenses of SJS Group (SJS) and Barukh for 2012–14.5 None of thes
xtent that Altera’s relevant holdings rest on Chevron, the Supreme Court in Loper Bright was explicit that its rejection of Chevron does not “call into question prior cases that relied on the Chevron framework” as the Court’s “change in interpretive methodology” is not enough, by itself, to justify overruling a statutory precedent.
l refer as “Target.” Petitioner alleged under- payments of tax by Target for tax years 2007–2011.2 According to petitioner, the supposed underpayments of tax arose from Target’s failure to comply with transfer pricing regulations prom- ulgated under section 482. Petitioner alleged that Target for 2007–2011 “ha[d] not allocated any U.S. head office executive management services expenses to controlled foreign subsidiaries.” Petitioner expressed a be- lief that the IRS “ha[d] issued an advance pric
MEMORANDUM OPINION GREAVES, Judge: The primary issue in these consolidated cases is the Commissioner’s allocation of income under section 482 between Amgen Inc.
39.45-1 (1953)), which related to section 45 of the Internal Revenue Code of 1939, continued to be effective as to section 482 of the Internal Revenue Code of 1954 until section 39.45-1 of Regulations 118 was superseded by new regulations.111 It took time for the Treasury Department to promulgate regulations relating to the provisions of the Internal Revenue Code of 1954.
The IRS made a section 482 allocation from España to AG for 1978 and 1979, calculated as a 2% roy- alty on España’s net sales of P&G products. Procter & Gamble, 95 T.C. at 331. That reallocation increased P&G’s subpart F income under section 951(a)(1)(A). Procter & Gamble, 95 T.C. at 331. During the tax years involved in Procter & Gamble, Spain placed no restrictions on a Spanish company’s payment of royalties to an unre- lated entity. Id. at 338 n.6. However, Spanish law operated to prohibit ro
482 does not apply in this situation.
On remand the Eighth Circuit did not overrule this holding, nor did the Eighth Circuit hold that this Court’s choice of transfer pricing was incorrect.
paragraph (d), (f), or (g)(2) of this section, the fair market value of transferred property shall be the single payment arm’s-length price that would be paid for the property by an unrelated purchaser determined in accordance with the principles of section 482 and regulations thereunder.” Finally, respondent suggests that imposing an “artificial limitation” on the value of transferred intangible property would frustrate Congress’ purpose in enacting section 367(d).
482 does not apply in this situation.
ircumstances of the case and the entire history of transactions between the parties, Safway Steel Scaffolds, 590 F.2d at 1362. 7 Plentywood Drug contends that the Commissioner may not recharacterize the rent that it pays as qualified dividends under section 482. But the Commissioner did not rely on section 482 to reclassify the rent. Section 482 caselaw is not relevant here. - 9 - [*9] II. Fair Market Rent A fair market rent is one at which “the property would change hands between a willing buye
Section 482 provides in relevant part that: In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Secretary may distribute, apportio
Section 482 provides in relevant part that: In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Secretary may distribute, apportion, or allocate gross income, d
ircumstances of the case and the entire history of transactions between the parties, Safway Steel Scaffolds, 590 F.2d at 1362. 7 Plentywood Drug contends that the Commissioner may not recharacterize the rent that it pays as qualified dividends under section 482. But the Commissioner did not rely on section 482 to reclassify the rent. Section 482 caselaw is not relevant here. - 9 - [*9] II. Fair Market Rent A fair market rent is one at which “the property would change hands between a willing buye
Section 482 provides in relevant part that: In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Secretary may distribute, apportion, or allocate gross income, d
ircumstances of the case and the entire history of transactions between the parties, Safway Steel Scaffolds, 590 F.2d at 1362. 7 Plentywood Drug contends that the Commissioner may not recharacterize the rent that it pays as qualified dividends under section 482. But the Commissioner did not rely on section 482 to reclassify the rent. Section 482 caselaw is not relevant here. - 9 - [*9] II. Fair Market Rent A fair market rent is one at which “the property would change hands between a willing buye
Section 482 provides in relevant part that: In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Secretary may distribute, apportion, or allocate gross income, d
Section 482 provides in relevant part that: In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Secretary may distribute, apportion, or allocate gross income, d
Section 482 provides, similarly to section 45 ofthe 1928 Act, that "the Secretary may distribute, appor- tion, or allocate gross income, deductions, credits, or allowances between or a- mong * * * [related] organizations, trades, or businesses, ifhe determines that such distribution, apportionment, or allocation is nec
Murphy's valuation attempted a profit reallocation between the companies by postulating a "royalty" that Camelot would owe to Knight; but in so doing he made no showing ofcompliance with the selection-of-pricing-methodprinciples ofsection 482, which the Cavallaros belatedly allege is a standard that should be applied to valuations in this case.
fees" and for the totality ofthe "factoring fees." The claimed deductions were disallowed on various alternative grounds, including failure to satisfy the requirements ofsection 162, lack ofeconomic substance, and lack of arm's-length pricing under section 482. After concessions (some ofwhich ¹°A description ofthe issues the parties have settled or explicitly conceded, by docket number, appears in Appendix B. See infra pp. 79-80. Petitioners did not challenge at trial or in their post-trial bri
that are (2) related to export sales in a very clearly defined way (3) between parties that are related (under the section 482 definition ofa related party), one ofwhich is a qualifying FSC. There is no dispute that the requirements for applying the section 925 pricing methods were met with respect to the commission payments between Injector Co. and the FSC. But that is not the issue here. The issue is whether the form ofthe purchase ofFSC stock by the Roth IRAs must accord with its substance. A
fees" and for the totality ofthe "factoring fees." The claimed deductions were disallowed on various alternative grounds, including failure to satisfy the requirements ofsection 162, lack ofeconomic substance, and lack of arm's-length pricing under section 482. After concessions (some ofwhich ¹°A description ofthe issues the parties have settled or explicitly conceded, by docket number, appears in Appendix B. See infra pp. 79-80. Petitioners did not challenge at trial or in their post-trial bri
fees" and for the totality ofthe "factoring fees." The claimed deductions were disallowed on various alternative grounds, including failure to satisfy the requirements ofsection 162, lack ofeconomic substance, and lack of arm's-length pricing under section 482. After concessions (some ofwhich ¹°A description ofthe issues the parties have settled or explicitly conceded, by docket number, appears in Appendix B. See infra pp. 79-80. Petitioners did not challenge at trial or in their post-trial bri
fees" and for the totality ofthe "factoring fees." The claimed deductions were disallowed on various alternative grounds, including failure to satisfy the requirements ofsection 162, lack ofeconomic substance, and lack of arm's-length pricing under section 482. After concessions (some ofwhich ¹°A description ofthe issues the parties have settled or explicitly conceded, by docket number, appears in Appendix B. See infra pp. 79-80. Petitioners did not challenge at trial or in their post-trial bri
that are (2) related to export sales in a very clearly defined way (3) between parties that are related (under the section 482 definition ofa related party), one ofwhich is a qualifying FSC. There is no dispute that the requirements for applying the section 925 pricing methods were met with respect to the commission payments between Injector Co. and the FSC. But that is not the issue here. The issue is whether the form ofthe purchase ofFSC stock by the Roth IRAs must accord with its substance. A
fees" and for the totality ofthe "factoring fees." The claimed deductions were disallowed on various alternative grounds, including failure to satisfy the requirements ofsection 162, lack ofeconomic substance, and lack of arm's-length pricing under section 482. After concessions (some ofwhich ¹°A description ofthe issues the parties have settled or explicitly conceded, by docket number, appears in Appendix B. See infra pp. 79-80. Petitioners did not challenge at trial or in their post-trial bri
fees" and for the totality ofthe "factoring fees." The claimed deductions were disallowed on various alternative grounds, including failure to satisfy the requirements ofsection 162, lack ofeconomic substance, and lack of arm's-length pricing under section 482. After concessions (some ofwhich ¹°A description ofthe issues the parties have settled or explicitly conceded, by docket number, appears in Appendix B. See infra pp. 79-80. Petitioners did not challenge at trial or in their post-trial bri
fees" and for the totality ofthe "factoring fees." The claimed deductions were disallowed on various alternative grounds, including failure to satisfy the requirements ofsection 162, lack ofeconomic substance, and lack of arm's-length pricing under section 482. After concessions (some ofwhich ¹°A description ofthe issues the parties have settled or explicitly conceded, by docket number, appears in Appendix B. See infra pp. 79-80. Petitioners did not challenge at trial or in their post-trial bri
fees" and for the totality ofthe "factoring fees." The claimed deductions were disallowed on various alternative grounds, including failure to satisfy the requirements ofsection 162, lack ofeconomic substance, and lack of arm's-length pricing under section 482. After concessions (some ofwhich ¹°A description ofthe issues the parties have settled or explicitly conceded, by docket number, appears in Appendix B. See infra pp. 79-80. Petitioners did not challenge at trial or in their post-trial bri
fees" and for the totality ofthe "factoring fees." The claimed deductions were disallowed on various alternative grounds, including failure to satisfy the requirements ofsection 162, lack ofeconomic substance, and lack of arm's-length pricing under section 482. After concessions (some ofwhich ¹°A description ofthe issues the parties have settled or explicitly conceded, by docket number, appears in Appendix B. See infra pp. 79-80. Petitioners did not challenge at trial or in their post-trial bri
fees" and for the totality ofthe "factoring fees." The claimed deductions were disallowed on various alternative grounds, including failure to satisfy the requirements ofsection 162, lack ofeconomic substance, and lack of arm's-length pricing under section 482. After concessions (some ofwhich ¹°A description ofthe issues the parties have settled or explicitly conceded, by docket number, appears in Appendix B. See infra pp. 79-80. Petitioners did not challenge at trial or in their post-trial bri
fees" and for the totality ofthe "factoring fees." The claimed deductions were disallowed on various alternative grounds, including failure to satisfy the requirements ofsection 162, lack ofeconomic substance, and lack of arm's-length pricing under section 482. After concessions (some ofwhich ¹°A description ofthe issues the parties have settled or explicitly conceded, by docket number, appears in Appendix B. See infra pp. 79-80. Petitioners did not challenge at trial or in their post-trial bri
Ifwe sustain respondent's determination to cancel APA I and APA II for tax years 2005 and 2006, respectively, and we hold for respondent on the section 482 adjustments, we will need to consider whether petitioner is liable for penalties pursuant to section 6662(e) and (h).
We hold as to petitioners' former argument that neither section 482 nor the regulations - 6 - thereunder require that the Commissioner, when exercising his authority under section 482, always determine the true separate taxable income ofeach controlled taxpayer in a consolidated group contemporaneouslywit
We hold as to petitioners' former argument that neither section 482 nor the regulations - 6 - thereunder require that the Commissioner, when exercising his authority under section 482, always determine the true separate taxable income ofeach controlled taxpayer in a consolidated group contemporaneouslywit
As a result ofthat examination, the IRS proposed under its authoritypursuant to section 482 to increase the intercompany royalty to 6% beginning with the 2001 tax year.
Using the same criteria as for the other licenses, Berneman selected 44 agreements that established separate and distinguishable payment terms for the grant ofrights to a trademark or trade name. Each agreement contained trademark royalty rates ranging from 0% to 5% (retail) ofnet sales. The actual royalty rate contained in the trademark licence agreement is 5.3% ofsales (retail), which exceeds the arm's-length ranges. Therefore, we conclude that this agreement meets the requirements of section
We hold as to petitioners' former argument that neither section 482 nor the regulations - 6 - thereunder require that the Commissioner, when exercising his authority under section 482, always determine the true separate taxable income ofeach controlled taxpayer in a consolidated group contemporaneouslywit
We hold as to petitioners' former argument that neither section 482 nor the regulations - 6 - thereunder require that the Commissioner, when exercising his authority under section 482, always determine the true separate taxable income ofeach controlled taxpayer in a consolidated group contemporaneouslywit
We hold as to petitioners' former argument that neither section 482 nor the regulations - 6 - thereunder require that the Commissioner, when exercising his authority under section 482, always determine the true separate taxable income ofeach controlled taxpayer in a consolidated group contemporaneouslywit
The Commissioner has broad discretion in applying section 482, and we will uphold his determination unless the taxpayer shows it to be arbitrary, capri- cious, or unreasonable.
at 65) (July 27, 2015), which held that a regulation under section 482 was invalid because, in promulgating the regulation, the Treasury did not "adequately respond to commentators".
We hold as to petitioners' former argument that neither section 482 nor the regulations - 6 - thereunder require that the Commissioner, when exercising his authority under section 482, always determine the true separate taxable income ofeach controlled taxpayer in a consolidated group contemporaneouslywit
The Court stated that because the Commissioner made no section 482 adjustment that would result in distributions from the S corporation to the taxpayers for income tax purposes the commission payments could not be treated as excess contributions to the taxpayers' Roth IRAs.
The Court stated that because the Commissioner made no section 482 adjustment that would result in distributions from the S corporation to the taxpayers for income tax purposes the commission payments could not be treated as excess contributions to the taxpayers' Roth IRAs.
The instant cases are distinguishable from Hellweg. Like the Commissioner in Hellweg, respondent does not object to the transaction on the basis ofsection 482 or section 408(c)(2)(A).
23We also note that unlike the statutory provision at issue in Mayo Found., sec. 482 purports only to empower the Secretary to allocate income among controlled entities but not to directly govern taxpayer conduct.
The instant cases are distinguishable from Hellweg. Like the Commissioner in Hellweg, respondent does not object to the transaction on the basis ofsection 482 or section 408(c)(2)(A).
The instant cases are distinguishable from Hellweg. Like the Commissioner in Hellweg, respondent does not object to the transaction on the basis ofsection 482 or section 408(c)(2)(A).
The instant cases are distinguishable from Hellweg. Like the Commissioner in Hellweg, respondent does not object to the transaction on the basis ofsection 482 or section 408(c)(2)(A).
23We also note that unlike the statutory provision at issue in Mayo Found., sec. 482 purports only to empower the Secretary to allocate income among controlled entities but not to directly govern taxpayer conduct.
The instant cases are distinguishable from Hellweg. Like the Commissioner in Hellweg, respondent does not object to the transaction on the basis ofsection 482 or section 408(c)(2)(A).
ut neither is section 482 the governing authority every time a gift tax valuation requires allocating profits between two companies--and the Cavallaros acknowledge that there is no "legal requirement that one purporting to value a company must always apply transferpricing principles." Consequently, we disagree with the Cavallaros' argument that "Bello must identify specific transactions that were conducted off-market and analyze and adjust them" under section 1.482-1(b)(1), Income Tax Regs.
ut neither is section 482 the governing authority every time a gift tax valuation requires allocating profits between two companies--and the Cavallaros acknowledge that there is no "legal requirement that one purporting to value a company must always apply transferpricing principles." Consequently, we disagree with the Cavallaros' argument that "Bello must identify specific transactions that were conducted off-market and analyze and adjust them" under section 1.482-1(b)(1), Income Tax Regs.
Respondent determined under section 482 substantial defi- ciencies in petitioner's income tax for 2005 and 2006.¹ Many ofthese adjustments arise in connection with a cost sharing arrangement executedby petitioner and certain affiliates pursuantto section 1.482-7, Income Tax Regs.2 Currently before the Court is petitioner's motion for partial summaryjudg- ment filed under Rule
We hold that our deficiencyjurisdiction includes reviewing the cancellations because they are necessary to determine the merits ofthe deficiencies.4 .
A primary adjustment under section 482 requires a secondary adjustment to conform a taxpayer's accounts.
The accounts receivable were created after a section 482 adjustment rather than resulting from ordinary business.
Petitioner and respondent entered into two advance pricing agreements (APAs) that set a transfer pricing methodology for certain transactions under section 482 (APAs at issue).
ny, petitioners' tax bases in their management company stock were approximately equal to the $2,969,000 claimed loss deduction that arose from the management company's payment ofthe deferred compensation. On audit, respondent relied alternatively on sec. 482 to reallocate the deferred compensation deduction of$3,066,000 to the tax-exempt ESOP and on sec. 382 to limit to $256,223 the claimed loss deduction. Respondent has abandoned these alternative theories and now argues solely for the applicat
- 32 - However, in Hellweg, the Commissioner made no such adjustments We stated that because the Còmmissionermade no section 482 ädjustmentwhich would result in distributiöns from the S corporationto th'e taxpayers for income tax purposes, the commissión-payinents cannot be treated as excess contributions to petitioners' Roth IRAs.
Respondent also determined that the capital loss carryoverwas disallowed under section 482 and the doctrine ofCommissioner v.
Respondent also determined that the capital loss carryoverwas disallowed under section 482 and the doctrine ofCommissioner v.
- 32 - However, in Hellweg, the Commissioner made no such adjustments We stated that because the Còmmissionermade no section 482 ädjustmentwhich would result in distributiöns from the S corporationto th'e taxpayers for income tax purposes, the commissión-payinents cannot be treated as excess contributions to petitioners' Roth IRAs.
ny, petitioners' tax bases in their management company stock were approximately equal to the $2,969,000 claimed loss deduction that arose from the management company's payment ofthe deferred compensation. On audit, respondent relied alternatively on sec. 482 to reallocate the deferred compensation deduction of$3,066,000 to the tax-exempt ESOP and on sec. 382 to limit to $256,223 the claimed loss deduction. Respondent has abandoned these alternative theories and now argues solely for the applicat
Respondent calculated the adjustment to the management fee deduction using the section 482 principles.
eturn or $5,000. "In the light of this holding, we need not and do not address respondent's argument, raised for the first time on brief, that respondent's disallowance of portions of the management fee deductions reflects a proper allocation under sec. 482. - 11 ·- Respondent bears the burden of production with respect to this penalty. Sec. 7491(c). To meet this burden, respondent must produce evidence establishing that it is appropriate to impose this penalty. Once respondent has done so, the
2Respondent argues, alternatively, that (1) if the corporations are respected for Federal income tax purposes, he may allocate all of their income and expenses and all of the income and expenses of Robucci LLC to -Dr. Robucci under the authority of sec. 482, and (2) if the corporations are respected for tax purposes and respondent's application of sec. 482 is deemed arbitrary and capricious, respondent may allocate all of the income and expenses of the corporations and Robucci LLC to (continued.
y Warwick and the trading companies on several grounds including lack of economic substance, the partnership antiabuse rules of section 1.701-2, Income Tax Regs., the disguised sale rules of section 707(a) (2) (B), and the transfer pricing rules of section 482.' Further, the FPAAs adjusted the partnerships' bases in the receivables -to zero and determined accuracy-related penalties for gross valuation misstatements under section 6662 (h).
This case is distinguishable from Michael C.
y Warwick and the trading companies on several grounds including lack of economic substance, the partnership antiabuse rules of section 1.701-2, Income Tax Regs., the disguised sale rules of section 707(a) (2) (B), and the transfer pricing rules of section 482.' Further, the FPAAs adjusted the partnerships' bases in the receivables -to zero and determined accuracy-related penalties for gross valuation misstatements under section 6662 (h).
y Warwick and the trading companies on several grounds including lack of economic substance, the partnership antiabuse rules of section 1.701-2, Income Tax Regs., the disguised sale rules of section 707(a) (2) (B), and the transfer pricing rules of section 482.' Further, the FPAAs adjusted the partnerships' bases in the receivables -to zero and determined accuracy-related penalties for gross valuation misstatements under section 6662 (h).
y Warwick and the trading companies on several grounds including lack of economic substance, the partnership antiabuse rules of section 1.701-2, Income Tax Regs., the disguised sale rules of section 707(a) (2) (B), and the transfer pricing rules of section 482.' Further, the FPAAs adjusted the partnerships' bases in the receivables -to zero and determined accuracy-related penalties for gross valuation misstatements under section 6662 (h).
y Warwick and the trading companies on several grounds including lack of economic substance, the partnership antiabuse rules of section 1.701-2, Income Tax Regs., the disguised sale rules of section 707(a) (2) (B), and the transfer pricing rules of section 482.' Further, the FPAAs adjusted the partnerships' bases in the receivables -to zero and determined accuracy-related penalties for gross valuation misstatements under section 6662 (h).
y Warwick and the trading companies on several grounds including lack of economic substance, the partnership antiabuse rules of section 1.701-2, Income Tax Regs., the disguised sale rules of section 707(a) (2) (B), and the transfer pricing rules of section 482.' Further, the FPAAs adjusted the partnerships' bases in the receivables -to zero and determined accuracy-related penalties for gross valuation misstatements under section 6662 (h).
Respondent calculated the adjustment to the management fee deduction using the section 482 principles.
y Warwick and the trading companies on several grounds including lack of economic substance, the partnership antiabuse rules of section 1.701-2, Income Tax Regs., the disguised sale rules of section 707(a) (2) (B), and the transfer pricing rules of section 482.' Further, the FPAAs adjusted the partnerships' bases in the receivables -to zero and determined accuracy-related penalties for gross valuation misstatements under section 6662 (h).
2Respondent argues, alternatively, that (1) if the corporations are respected for Federal income tax purposes, he may allocate all of their income and expenses and all of the income and expenses of Robucci LLC to -Dr. Robucci under the authority of sec. 482, and (2) if the corporations are respected for tax purposes and respondent's application of sec. 482 is deemed arbitrary and capricious, respondent may allocate all of the income and expenses of the corporations and Robucci LLC to (continued.
y Warwick and the trading companies on several grounds including lack of economic substance, the partnership antiabuse rules of section 1.701-2, Income Tax Regs., the disguised sale rules of section 707(a) (2) (B), and the transfer pricing rules of section 482.' Further, the FPAAs adjusted the partnerships' bases in the receivables -to zero and determined accuracy-related penalties for gross valuation misstatements under section 6662 (h).
ervice. And “guarantees of obligations” is actually tucked away in a parenthetical listing types of equity interests. Container’s two other references are also of little help, but Container also asks us to look at transfer pricing of services under section 482. This might be a useful guide. Section 482’s purpose “is to ensure that taxpayers clearly reflect income attributable to controlled transactions, and to prevent the avoidance of taxes with respect to such transactions.” Sec. 1.482-lT(a)(l)
We also note that respondent did not invoke his power under section 482 to reallocate such expenses, nor does he(cid:127)suggestan alternate allocation that would more fairly apportion .
After concessions, the issue for decision is whether, pursuant to section 482,2 the buy-in payment was arm's length.
for abuse of discretion, the use of “may” in section 6015(f) is not dispositive. Internal Revenue Code sections providing that the Secretary “may” take an action have sometimes been interpreted as mandating review for abuse of discretion, see, e.g., sec. 482; Ballentine Motor Co. v. Commissioner, 321 F.2d 796, 800 (4th Cir. 1963), affg. 39 T.C. 348 (1962); Dolese v. Commissioner, 82 T.C. 830, 838 (1984), affd. 811 F.2d 543, 546 (10th Cir. 1987); Foster v. Commissioner, 80 T.C. 34, 142-143 (1983)
After concessions, the issue for decision is whether, pursuant to section 482, the buy-in payment was arm’s length.
748 (1992) ; (2) reallocate income or deductions under section 482, e .g ., Bausch & Lomb, Inc .
748 (1992); (2) reallocate income or deductions under section 482, e.g., Bausch & Lomb, Inc.
Finally, respondent asserts the Court should reallocate the income in dispute to Kanter, Ballard, and Lisle pursuant to section 482.107 Petitioners assert the payments from The Five were earned and properly reported as taxable income by IRA, THC, and other Kanter-related entities.
Finally, respondent asserts the Court should reallocate the income in dispute to Kanter, Ballard, and Lisle pursuant to section 482.107 Petitioners assert the payments from The Five were earned and properly reported as taxable income by IRA, THC, and other Kanter-related entities.
394, 395, 403 (1972) (declining to permit allocation of income by the Commissioner under section 482 to a taxpayer "that he did not receive and that he was prohibited from receiving") .
Finally, respondent asserts the Court should reallocate the income in dispute to Kanter, Ballard, and Lisle pursuant to section 482.107 Petitioners assert the payments from The Five were earned and properly reported as taxable income by IRA, THC, and other Kanter-related entities.
Finally, respondent asserts the Court should reallocate the income in dispute to Kanter, Ballard, and Lisle pursuant to section 482.107 Petitioners assert the payments from The Five were earned and properly reported as taxable income by IRA, THC, and other Kanter-related entities.
Finally, respondent asserts the Court should reallocate the income in dispute to Kanter, Ballard, and Lisle pursuant to section 482.107 Petitioners assert the payments from The Five were earned and properly reported as taxable income by IRA, THC, and other Kanter-related entities.
in this case. If, as respondent argues, the interest rates on the unsecured indebtedness from Sidal to petitioners and from petitioners to Paulan, as set forth in the promissory notes, are too low, those rates may be subject to increase pursuant to section 482. See - 34 - sec. 1.482-2(a)(1), Income Tax Regs. Nonetheless, we agree with respondent that the promissory notes are entitled to little or no weight in our consideration of whether the back-to-back loans claimed by petitioners actually exi
in this case. If, as respondent argues, the interest rates on the unsecured indebtedness from Sidal to petitioners and from petitioners to Paulan, as set forth in the promissory notes, are too low, those rates may be subject to increase pursuant to section 482. See - 34 - sec. 1.482-2(a)(1), Income Tax Regs. Nonetheless, we agree with respondent that the promissory notes are entitled to little or no weight in our consideration of whether the back-to-back loans claimed by petitioners actually exi
Application of Section 482 to Qualified Cost-Sharing Agreements Section 482 provides that "In the case of any transfer * * * of intangible property * * * the income with respect to such transfer * * * shall be commensurate with the income attributable to the intangible." Participants in a qualified cost-sharing agreement (QCSA) relinquish exclusive ownership of all exploitation rig
Held, further, R’s section 482, I.R.C., adjustments, relating to the intercompany transaction, are arbitrary and capricious.
WFIC because it was confusing for customers to receive crop hail insurance bills from a company called "Taxman". On May 9, 1990, petitioner entered into a purchase contract with Mr. Ihry to sell 'Respondent did not raise the potential application of sec. 482 to petitioner's arrangement with WFIC. See, e.g., Haag v. Commissioner, 88 T.C. 604, 614 (1987), affd. without published opinion 855 F.2d 855 (8th Cir. 1988). Therefore, we do not address it. I - 32 - the crop hail insurance business for $25
Purpose and Scope of Section 482 Section 482 was enacted to prevent tax evasion and ensure that taxpayers clearly reflect income relating to transactions between controlled entities.
Held, further, R’s section 482, I.R.C., adjustments, relating to the intercompany transaction, are arbitrary and capricious.
748 (1992);8 (2) reallocate income or deductions under section 482, 8 The U.S.
We continue to adhere to that view.6 The majority cites a number of cases decided under the abuse of discretion standard, stating that "[i]n none of these types of cases have we held * * * that we are limited to the administrative record." Majority op. p. 26 (emphasis added). In three of the types of cases to which the majority alludes (involving section 482 reallocations, section 4 6 "clear reflection of income" determinations, and waivers of the former section 6659 addition to tax), the inappl
748 (1992); (2) reallocate income or deductions under section 482, e.g., Bausch & Lomb, Inc.
shows, Crocus's share of such expenses is less than 38 percent for the last 7 months of the fiscal year ended July 31, 1995, and less than 27 percent for the fiscal year ended July 31, 1996. 23We shall not accede to petitioner's request that we use sec. 482 to allocate income between petitioner and Crocus because (continued...) - 50 - Section 162(a)(1) allows as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, inc
We consider whether the gross receipts were properly allocated by respondent and are taxable to petitioner under either the assignment of income doctrine and section 61 or under section 482, the regulations, and the case law thereunder.5 Gross income includes all income from whatever source derived.
(1981), affd. 723 F.2d 58 (10th Cir. 1983).4 There are, however, situations where the corporate entity will be 4 The decision in Keller v. Commissioner, 77 T.C. 1014 (1981), affd. 723 F.2d 58 (10th Cir. 1983), turns on an allocation of income under sec. 482. For there to be a sec. 482 allocation, however, there must be two or more recognizable entities. - 8 - disregarded because it was an agent of the shareholder or it did not perform the services or otherwise conduct business. See, e.g., Commi
(CFC) was unreasonable and excessive and in recharacterizing the amounts transferred to reflect an arm’s- length rate of interest under section 482; 5Many issues in these consolidated cases have been settled or conceded by the parties, or are deemed conceded by this Court.
(CFC) was unreasonable and excessive and in recharacterizing the amounts transferred to reflect an arm’s- length rate of interest under section 482; 5Many issues in these consolidated cases have been settled or conceded by the parties, or are deemed conceded by this Court.
(CFC) was unreasonable and excessive and in recharacterizing the amounts transferred to reflect an arm’s- length rate of interest under section 482; 5Many issues in these consolidated cases have been settled or conceded by the parties, or are deemed conceded by this Court.
(CFC) was unreasonable and excessive and in recharacterizing the amounts transferred to reflect an arm’s- length rate of interest under section 482; 5Many issues in these consolidated cases have been settled or conceded by the parties, or are deemed conceded by this Court.
fit within the narrow exception carved out by this Court in Lohrke v. Commissioner, 48 T.C. 679 (1967). In Lohrke, we held that a taxpayer may deduct the expenses of another taxpayer in 8(...continued) affiliates (operational entities), pursuant to sec. 482. - 10 - situations in which the taxpayer’s payment of the business expenses of another serves to “protect or promote” the taxpayer’s own business. Id. at 685. AJCS must show that its motive for paying the affiliates’ expenses was in furthera
ry provides guidance as to the content of the other “principles” or contains any further gloss on the meaning intended by 14(...continued) means an obligation of (and payable by) a United States person that is a related person (within the meaning of sec. 482, I.R.C. 1954) to an “applicable CFC”. DEFRA secs. 127(g)(3)(C)(ii), 121(b)(2)(E) and (F), 98 Stat. 653, 640. An “applicable CFC” for this purpose means generally any controlled foreign corporation of which at least 50 percent of all voting p
l Gefíken also reported to Mr. Donaldson. Mr. Geffken spent less than 50 percent of his time on Avitene-related matters. As an alternative to this determination, respondent determined that MedChem P.R.’s income was taxable to the MedChem Group under sec. 482(a). Because respondent does not pursue this argument on brief, we consider it conceded. Of course, we also bear in mind the Supreme Court’s interpretation of the phrase “trade or business” as espoused in Commissioner v. Groetzinger, 480 U.S.
In particular, petitioner questions whether respondent may employ section 482 to make an 1 Petitioner has filed two motions for partial summary judgment.
shareholders and corporations as separate taxable entities is simply not applicable. Third, even when we respect a PSC as the true earner, this does not end our examination; we then evaluate the arrangement between the shareholder and the PSC under section 482. In so doing, we consider whether the shareholder’s total compensation from the PSC was essentially equivalent to that which he would have received if he had not employed the PSC structure. See, e.g., Haag v. Commissioner, 88 T.C. 604, 61
various adjustments to their corporate income tax returns for their taxable years ending in 1994, 1995, and 1996. Respondent determined, inter alia, that Hatchery sold its broiler chickens to Foods at prices below the arm's-length price mandated by section 482. As a consequence, respondent adjusted Hatchery's returns by increasing the gross income that Hatchery earned on its sale of broiler chickens to Foods during the years in issue and, concomitantly, adjusted Foods’ returns by increasing Foo
Commissioner, supra at 78-79, involved a section 482 imputation of interest income to Continental Equities, Inc., (Continental) from loans it had made to four related corporations.
ttle on the Mexican side of the border was required before petitioner could import the cattle into the United States. Petitioner’s revenues were based on the flow of USDA-approved cattle originating in Mexico to U.S. buyers. 6 The parties agree that sec. 482 is not at issue. - 12 - We reject respondent’s argument that the costs Union Mexico incurred for inspection and bathing of the cattle are strictly Union Mexico expenses (which should not be passed on to petitioner). The cattle-crossing opera
The other motion for partial summary judgment concerns what has been denominated as the “section 482 cost-sharing issue”, which involves the question of whether the cost, if any, of employee stock options should be included as part of petitioner’s cost- sharing agreement with its foreign subsidiaries.
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
at 891, we stated: if respondent does not indicate in the notice of deficiency that he is relying on section 482, but alerts the taxpayer of his reliance on section 482 formally in pleadings far enough in advance of trial so as not to prejudice the taxpayer or take him by surprise at trial, then the burden of proof shifts to (continued...) - 21 - U.S.A.
1999-220, we held that income relating to printed circuit assemblies should not be reallocated under section 482 to petitioner from its Singapore subsidiary for its 1991 and 1992 fiscal years.
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
ice and Procedure. 2 The instant case involves several issues for which the parties filed separate briefs. In an opinion issued July 2, 1999, we addressed the issue of whether income relating to printed circuit assemblies should be reallocated under sec. 482 to petitioner from its Singapore subsidiary for its 1991 and 1992 fiscal years. See Compaq Computer Corp. & Subs. v. Commissioner, T.C. Memo. 1999-220. In an opinion issued Sept. 21, 1999, we addressed the issue of whether a foreign tax cred
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutor.y Provisions . . . !. . . . . . . 287 C. General Legal Principles Relating to Civil Fraud .
t for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. 2Respondent concedes that $8,855,121 of income earned on funds invested by Overseas Partners, Ltd. (OPL), is not income to petitioner pursuant to sec. 482. Respondent determined that if petitioner must include excess value charges in gross income, petitioner is entitled to a corresponding deduction of $32,543,889 for shippers' claims. Respondent concedes that $325,740 of the $1.2 million paid
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
(Schlegel UK), and Schlegel GmbH on July 1, 1989, and November 30, 1989, respectively, for purposes of section 311(b) and section 482 and (2) what was the Schlegel Corporation’s adjusted tax basis in Schlegel GmbH on November 30, 1989.
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
calculated the increased commission on the basis of petitioner's operating costs plus 54 percent of those costs. OPINION In General Section 48215 gives the Commissioner broad authority to allocate income, deductions, credits, or allowances between 15Sec. 482 provides: In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same inte
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
. . . . . . . . . . . . . 277 4. Conclusion . . . . . . . . . . . . . . . . . . 279 III. Fraud Additions to Tax and Penalties . . . . . . . . . . 286 A. Positions of the Parties . . . . . . . . . . . . . 286 - 6 - B. Applicable Statutory Provisions . . . . . . . . . . 287 C. General Legal Principles Relating to Civil Fraud . 28
1999-220, we held that income relating to printed circuit assemblies should not be reallocated under section 482 to petitioner from its Singapore subsidiary for its 1991 and 1992 fiscal years.
not be treated as a tax for purposes of this title to the extent— (1) the amount of such tax is used (directly or indirectly) by the country imposing such tax to provide a subsidy by any means to the taxpayer, a related person (within the meaning of section 482), or any party to the transaction or to a related transaction, and (2) such subsidy is determined (directly or indirectly) by reference to the amount of such tax, or the base used to compute the amount of such tax.
31, 1983 4,024,241 --- The issues relating to section 482,3 the subject of this opinion, have been severed from the other issues in these cases.
Effect of Section 482 Regulations on Allocation of Value.
ucts to the DISC, regardless of whether any price was actually paid. Id. at 117. Section 994(a) provided three alternative pricing methods for DISC's. The first two methods were safe harbors, created so that taxpayers might avoid the complexities of section 482. Sec. 994(a)(1) and (2); Brown-Forman Corp. v. Commissioner, 94 T.C. 919, 926 (1990), affd. 955 F.2d 1037 (6th Cir. 1992). However, under section 994(a)(3), taxpayers could use the rules of section 482 to allocate an arm's-length profit t
to certain royalty payments that respondent determined were not ordinary and necessary business expenses pursuant to sec. 162. In the notices of deficiency, respondent's alternative position was that the royalty rate should be adjusted, pursuant to sec. 482, to 5 percent. By way of amended answers, respondent asserts that the (continued...) - 4 - Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to th
Effect of Section 482 Regulations on Allocation of Value.
to certain royalty payments that respondent determined were not ordinary and necessary business expenses pursuant to sec. 162. In the notices of deficiency, respondent's alternative position was that the royalty rate should be adjusted, pursuant to sec. 482, to 5 percent. By way of amended answers, respondent asserts that the (continued...) - 4 - Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to th
T.C. Memo. 1998-342 UNITED STATES TAX COURT KENCO RESTAURANTS, INC., ET AL.,1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 15949-95, 15950-95 Filed September 24, 1998. 15951-95, 15952-95. Pursuant to sec. 482, I.R.C., R reallocated among a group of commonly owned corporations certain management service fees charged by one member of the group to the other members. Held: Ps have failed to prove that R abused his discretion by making an arbitrary, capricious, or unreasona
to certain royalty payments that respondent determined were not ordinary and necessary business expenses pursuant to sec. 162. In the notices of deficiency, respondent's alternative position was that the royalty rate should be adjusted, pursuant to sec. 482, to 5 percent. By way of amended answers, respondent asserts that the (continued...) - 4 - Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to th
to certain royalty payments that respondent determined were not ordinary and necessary business expenses pursuant to sec. 162. In the notices of deficiency, respondent's alternative position was that the royalty rate should be adjusted, pursuant to sec. 482, to 5 percent. By way of amended answers, respondent asserts that the (continued...) - 4 - Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to th
to certain royalty payments that respondent determined were not ordinary and necessary business expenses pursuant to sec. 162. In the notices of deficiency, respondent's alternative position was that the royalty rate should be adjusted, pursuant to sec. 482, to 5 percent. By way of amended answers, respondent asserts that the (continued...) - 4 - Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to th
to certain royalty payments that respondent determined were not ordinary and necessary business expenses pursuant to sec. 162. In the notices of deficiency, respondent's alternative position was that the royalty rate should be adjusted, pursuant to sec. 482, to 5 percent. By way of amended answers, respondent asserts that the (continued...) - 4 - Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to th
In the notices of deficiency, respondent determined, among other things, that petitioners were liable for additional taxes as a result of: (1) Imputed interest income on promissory notes from RAM Drilling and TMC Farms pursuant to section 482, and (2) the incorrect valuation of the RAM Drilling stock for purposes of the section 337 liquidation of TMC Resources.
ucts to the DISC, regardless of whether any price was actually paid. Id. at 117. Section 994(a) provided three alternative pricing methods for Disc’s. The first two methods were safe harbors, created so that taxpayers might avoid the complexities of section 482. Sec. 994(a)(1) and (2); Brown-Forman Corp. v. Commissioner, 94 T.C. 919, 926 (1990), affd. 955 F.2d 1037 (6th Cir. 1992). However, under section 994(a)(3), taxpayers could use the rules of section 482 to allocate an arm’s-length profit t
Section 994(a) provides three alternative pricing methods for DISC’s: (1) 4 percent of qualified export receipts on the sale of export property; (2) 50 percent of the combined taxable income of the DISC and its related supplier (the parent corporation); or (3) the arm's-length price, computed in accordance with section 482.6 Taxpayers may use the method that produces the largest amount of income allocation to the DISC’s.
0, 1987, 1988, and 1989, INC was joined in the consolidated income tax returns filed by InverWorld Holdings, Inc. (Holdings), which was the owner of all of the outstanding stock of INC. Accordingly, respondent's income allocations to INC pursuant to sec. 482 affect the income tax liability of Holdings. For convenience and clarity, we make reference to INC only and include Holdings in such references. - 3 - section 482, and that INC was liable for additions to tax pursuant to sections 6651, 6653(
As resolution of the section 6038A issues could negate the need for a trial of issues involving section 482 (section 482 was an alternative ground for the adjustments), we conducted a separate trial of the section 6038A issues.
ited (A-Alpha), a Hong Kong corporation, for research and development services, to the extent that such payments were U.S. source income. Respondent does not contend that any of the partnerships are shams, nor that any adjustments are required under section 482. The notice of deficiency provides that petitioner's failure to withhold gave rise to the following deficiencies: Year Deficiency 1976 $189,300 1977 374,463 1978 639,555 1979 320,664 1980 321,300 On a motion for summary judgment, the movi
Respondent also determined that the income and expenses attributable to Big O Truck Stop should be reallocated under section 482 from Ms.
- 2 - Following concessions by petitioner, the issues remaining for decision are: (1) Whether respondent properly reallocated to petitioner $176,548 for its fiscal year ended March 31, 1991, and $155,000 for its fiscal year ended March 31, 1992, from three of its related entities pursuant to section 482; and (2) whether petitioner is liable for the accuracy-related penalties pursuant to section 6662(b)(2) for both of the aforementioned fiscal years.
Respondent also determined that the income and expenses attributable to Big O Truck Stop should be reallocated under section 482 from Ms.
0, 1987, 1988, and 1989, INC was joined in the consolidated income tax returns filed by InverWorld Holdings, Inc. (Holdings), which was the owner of all of the outstanding stock of INC. Accordingly, respondent's income allocations to INC pursuant to sec. 482 affect the income tax liability of Holdings. For convenience and clarity, we make reference to INC only and include Holdings in such references. - 3 - section 482, and that INC was liable for additions to tax pursuant to sections 6651, 6653(
isc’s: (1) 4 percent of qualified export receipts on the sale of export property; (2) 50 percent of the combined taxable income of the DISC and its related supplier (the parent corporation); or (3) the arm’s-length price, computed in accordance with section 482. Taxpayers may use the method that produces the largest amount of income allocation to the Disc’s. Similarly, section 925 provides three pricing methods for FSC’s: (1) 1.83 percent of foreign trading gross receipts; (2) 23 percent of comb
As resolution of the section 6038A issues could negate the need for a trial of issues involving section 482 (section 482 was an alternative ground for the adjustments), we conducted a separate trial of the section 6038A issues.
Finally, we note that respondent did not contend that section 482 applied in the instant case.
The issues for decision are: (1) Whether certain commission income should be reallocated to petitioner from petitioner’s - 2 - wholly owned subsidiary pursuant to section 482.1 We hold that it should not.
(a) Allocation in Case of Reinsurance Agreement Involving Tax Avoidance or Evasion.--In the case of 2 or more related persons (within the meaning of section 482) who are parties to a reinsurance agreement (or where one of the parties to a reinsurance agreement is, with respect to any contract covered by the agreement, in effect an agent of another party to such agreement or a conduit between related persons), the Secretary may-- (1) allocate between or among such persons income (whether investm
oducts. Section 936(h)(7) requires the Secretary to prescribe such regulations as may be necessary and appropriate to carry out the purposes of section 936(h). Section 1.936-6, Income Tax Regs., provides the following: 3(...continued) the meaning of sec. 482. Sec. 936(h)(5)(C)(i)(I)(b). - 13 - (b) Profit split option--(1) Computation of combined taxable income. Question 1: In determining combined taxable income from sales of a possession product, how are the allocations and apportionments of exp
Forsyth discussed the new provisions to section 482 in the 1986 Tax Reform Act, supra, and stated, among other things: To set the appropriate royalty rate would require a detailed analysis of the worth of the intangible asset and the effect of the intangibles on the profitability of the two operating entities.
idend Income . . . . . . . . 191 D. Whether LTD Is Entitled to Deductions . . . . . . . 194 1. Law . . . . . . . . . . . . . . . . . . . . . 194 2. Discussion . . . . . . . . . . . . . . . . . . 195 E. Whether Income Should Be Allocated Pursuant to Section 482 . . . . . . . . . . . . . . 199 1. Background . . . . . . . . . . . . . . . . . . 199 2. Law . . . . . . . . . . . . . . . . . . . . . 200 a. Section 482 in General . . . . . . . . . 200 b. The Section 482 Regulations . . . . . . . 203 3.
holding renders it unnecessary to address respondent's determinations that, in the event CVI does not qualify as a DISC during its relevant taxable years, the commission income CVI received from CV for those years should be reallocated to CV under sec. 482, or, in the alternative, that CVI is taxable on its income for those years. 12 We note that CVI’s status as a DISC is not in dispute for its taxable year ending Dec. 31, 1984. 13 The parties agree that, in the event we hold, as we have, that
idend Income . . . . . . . . 191 D. Whether LTD Is Entitled to Deductions . . . . . . . 194 1. Law . . . . . . . . . . . . . . . . . . . . . 194 2. Discussion . . . . . . . . . . . . . . . . . . 195 E. Whether Income Should Be Allocated Pursuant to Section 482 . . . . . . . . . . . . . . 199 1. Background . . . . . . . . . . . . . . . . . . 199 2. Law . . . . . . . . . . . . . . . . . . . . . 200 a. Section 482 in General . . . . . . . . . 200 b. The Section 482 Regulations . . . . . . . 203 3.
eated as a tax for purposes of this title to the extent-- - 41 - (1) the amount of such tax is used (directly or indirectly) by the country imposing such tax to provide a subsidy by any means to the taxpayer, a related person (within the meaning of section 482), or any party to the transaction or to a related transaction, and (2) such subsidy is determined (directly or indirectly) by reference to the amount of such tax, or the base used to compute the amount of such tax.
om the sales. Having concluded that the transaction in issue is properly viewed as a sale by Mr. Kluener using APECO as a conduit, we need not address respondent's contention that the gain from the sale of the horses should be allocated, pursuant to section 482, to Mr. Kluener in order to clearly reflect the income of both himself and APECO. We note, however, that we have previously stated that, if the conduit analysis of Commissioner v. Court Holding Co., 324 U.S. at 334, and its progeny applie
Forsyth discussed the new provisions to section 482 in the 1986 Tax Reform Act, supra, and stated, among other things: To set the appropriate royalty rate would require a detailed analysis of the worth of the intangible asset and the effect of the intangibles on the profitability of the two operating entities.
Forsyth discussed the new provisions to section 482 in the 1986 Tax Reform Act, supra, and stated, among other things: To set the appropriate royalty rate would require a detailed analysis of the worth of the intangible asset and the effect of the intangibles on the profitability of the two operating entities.
Forsyth discussed the new provisions to section 482 in the 1986 Tax Reform Act, supra, and stated, among other things: To set the appropriate royalty rate would require a detailed analysis of the worth of the intangible asset and the effect of the intangibles on the profitability of the two operating entities.
ion and all other organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interest, within the meaning of sec. 482. Sec. 936(h)(5)(C)(iKl)(b). Concentrate is sold in units; syrup and soft drinks are sold in equivalent gallons. The term “covered sales” means sales by members of the affiliated group (other than foreign affiliates) to persons who are not me
— In the case of 2 or more related persons (within the meaning of section 482) who are parties to a reinsurance agreement (or where one of the parties to a reinsurance agreement is, with respect to any contract covered by the agreement, in.
Accordingly, our decision in the instant case does not consider the application of section 482 in those circumstances in which the Canadian Convention also applies.
Petitioners contend that respondent improperly reallocated income from Americana to petitioners in disregard of section 482 by claiming that Americana was the alter ego of petitioner husband.
c. 127(g)(3), 98 Stat. 652-653; see also H. Conf. Rept. 98-861 at 938, 1984-3 C.B. (Vol. 2) 192. A "United States affiliate obligation" is an obligation issued before June 22, 1984, by a U.S. person related to an applicable CFC within the meaning of section 482. Deficit 69 Sec. 881(c)(4) prescribes certain rules in the case of port- folio interest received by a CFC. 70 We note that the U.S. Court of Appeals for the Ninth Circuit has described a "back-to-back loan" as "a bank loan * * * col- late
§ 1.482-lT(b), 26 CFR § 1.482-lT(b) (1993). Assuming that all transactions are assigned their arm’s length values in the corporate accounts, a jurisdiction using separate accounting taxes corporations that operate within its borders only on the income those corporations recognize on their own hooks. See Container Corp., supra, 46
petitioners complied with the restriction; consequently, respondent is precluded from allocating profits purportedly attributable to such excess from petitioners' refining subsidiaries to petitioners' offtakers pursuant to either sec. 61, I.R.C., or sec. 482, I.R.C. Commissioner v. First Security Bank, 405 U.S. 394 (1972); Procter & Gamble Co. v. Commissioner, 95 T.C. 323 (1990), affd. 961 F.2d 1255 (6th Cir. 1992), followed. 1 On Jan. 7, 1991, Exxon Corp. and Affiliated Companies (docket No. 18
petitioners complied with the restriction; consequently, respondent is precluded from allocating profits purportedly attributable to such excess from petitioners' refining subsidiaries to petitioners' offtakers pursuant to either sec. 61, I.R.C., or sec. 482, I.R.C. Commissioner v. First Security Bank, 405 U.S. 394 (1972); Procter & Gamble Co. v. Commissioner, 95 T.C. 323 (1990), affd. 961 F.2d 1255 (6th Cir. 1992), followed. 1 On Jan. 7, 1991, Exxon Corp. and Affiliated Companies (docket No. 18
the instant case. We note that, in Foster v. Commissioner, 80 T.C. 34 (1983), affd. in part and vacated in part on another issue 756 F.2d 1430 (9th Cir. 1985), the Court of Appeals upheld our review of the Commissioner’s exercise of discretion under sec. 482, in which we held that the question of whether such discretion had been abused was a question of fact. Furthermore, the cases in which the de novo standard has been applied involved retroactive application of rules announced by means of adju
rude.oil for refining; (6) whether in fact the crude oil pricing restriction(s) imposed by Saudi Arabia was/were (cid:16)042observed by petitioners and their offtakers; (7) if a crude oil pricing restriction(s) existed and petitioners and their offtakers observed the restriction(s), whether or not the pricing restriction(s) precludes or preclude a section 482 or section 61 adjustment to petitioners' income.