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behalf of LTD, (7) INC's Operations Department researched and
chose investment vehicles for the omnibus IFF and MMA funds, and
(8) INC's personnel tracked exchange rates for the currency
futures and brokerage services LTD offered.
Respondent contends that LTD's service agreements with its
clients (the discretionary authorizations) were, for the most
part, independent transactions between unrelated parties.
Respondent argues that, because INC performed all of its services
on behalf of LTD, the revenues of LTD are the best indicators of
what INC's arm's length charges to LTD should have been, which is
the reason respondent allocated all of the remaining net revenues
earned by LTD to INC. Accordingly, respondent argues that the
arm's length charge for investment management services INC
provided to LTD was the net amount of revenues LTD derived in
servicing its clients. Accordingly, respondent argues that
allocations should be made to INC pursuant to section 482 as
follows:
INC’s Reported Respondent's
Year Revenues from LTD Allocations
1985 $582,000 $444,345
1986 945,000 960,206
1987 1,281,000 916,865
1988 1,440,000 1,027,586
1989 1,830,000 4,217,333
Finally, respondent contends that LTD is not entitled to the
deduction correlating to respondent's section 482 allocation to
INC.
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