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placing controlled taxpayers on a parity with uncontrolled,
unrelated taxpayers. Seagate Technology, Inc. & Consol. Subs. v.
Commissioner, 102 T.C. 149, 163 (1994), and the cases cited
therein.
The regulations promulgated pursuant to section 482 provide:
The interests controlling a group of controlled
taxpayers are assumed to have complete power to cause
each controlled taxpayer so to conduct its affairs that
its transactions and accounting records truly reflect
the taxable income from the property and business of
each of the controlled taxpayers. If however, this has
not been done, and the taxable incomes are thereby
understated, the district director shall intervene,
and, by making such distributions, apportionments, or
allocations as he may deem necessary of gross income,
deductions, credits, or allowances, or of any item or
element affecting taxable income, between or among the
controlled taxpayers constituting the group, shall
determine the true taxable income of each controlled
taxpayer. * * * [Sec. 1.482-1(b)(1), Income Tax
Regs.]
The term "true taxable income" means,
in the case of a controlled taxpayer, the taxable
income (or, as the case may be, any item or element
affecting taxable income) which would have resulted to
the controlled taxpayer, had it in the conduct of its
affairs (or, as the case may be, in the particular
contract, transaction, arrangement, or other act) dealt
with the other member or members of the group at arm’s
length. * * * [Sec. 1.482-1(a)(6), Income Tax Regs.]
The true taxable income of the group as a whole, as well as
its individual members, must be accurately determined. See
Schering Corp. & Subs. v. Commissioner, 69 T.C. 579, 600 (1978),
and the case cited therein. Accordingly, each controlled
taxpayer will be examined independently to determine whether each
such individual taxpayer is reporting its own true taxable
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