§482 — Allocation of income and deductions among taxpayers

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.

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to be effective as to section 482 of the Internal Revenue Code of 1954 until section 39.45-1 of Regulations 118 was superseded by new regulations.111 It took time for the Treasury Department to promulgate regulations relating to the provisions of the Internal Revenue Code of 1954.

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.

482 does not apply in this situation.

482 does not apply in this situation.

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).

This case is distinguishable from Michael C.

In the General Counsel Memorandum, the Commissioner expressed reservations about that conclusion and suspended further .consideration .15 GCM 38499 .

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.

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

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, 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

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.

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.

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 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.

After concessions, the issue for decision is whether, pursuant to section 482,2 the buy-in payment was arm's length.

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

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.

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

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

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

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

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

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

The accounts receivable were created after a section 482 adjustment rather than resulting from ordinary business.

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

Held, further, R’s section 482, I.R.C., adjustments, relating to the intercompany transaction, are arbitrary and capricious.

Held, further, R’s section 482, I.R.C., adjustments, relating to the intercompany transaction, are arbitrary and capricious.

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

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.

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

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

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(

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(

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

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.

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 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

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).

After concessions, the issue for decision is whether, pursuant to section 482, the buy-in payment was arm’s length.

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.

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

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.

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

(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.

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

. . . . . . . . . . . . . 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

. . . . . . . . . . . . . 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 .

. . . . . . . . . . . . . 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

. . . . . . . . . . . . . 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

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

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.

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

- 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.

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.

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.

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

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.

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).

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

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

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

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

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

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".

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.

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

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.

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).

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 .

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)

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.

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") .

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

748 (1992);8 (2) reallocate income or deductions under section 482, 8 The U.S.

748 (1992); (2) reallocate income or deductions under section 482, e.g., Bausch & Lomb, 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

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.

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.

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.

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

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.

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

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.

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.

Respondent also determined that the income and expenses attributable to Big O Truck Stop should be reallocated under section 482 from Ms.

Respondent also determined that the income and expenses attributable to Big O Truck Stop should be reallocated under section 482 from Ms.

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.

(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.

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.

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

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.