Inverworld, Inc., et al. - Page 133

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                  We first examine whether INC is a controlled taxpayer within                            
            the meaning of section 1.482-1(a)(4), Income Tax Regs.  INC was a                             
            wholly owned subsidiary of LTD, directly, during the taxable                                  
            years ended June 30, 1985 and 1986, and indirectly, through the                               
            insertion of a holding company, Holdings, during the subsequent                               
            taxable years in issue.  Consequently, we conclude that LTD                                   
            controlled INC within the meaning of section 1.482-1(a)(3),                                   
            Income Tax Regs., and that INC is a controlled taxpayer within                                
            the meaning of section 1.482-1(a)(4), Income Tax Regs.                                        
            Additionally, because the same interests that own LTD also own                                
            INC, we conclude that LTD and INC constitute a "group of                                      
            controlled taxpayers" within the meaning of section 1.482-                                    
            1(a)(5), Income Tax Regs.                                                                     
                  We turn next to whether INC provides the required services                              
            pursuant to section 1.482-2(b)(1), Income Tax Regs.  INC provides                             
            administrative services to LTD.  INC handles the daily operations                             
            of LTD’s pooled investments program and its funds, performs                                   
            research and bookkeeping, and produces the monthly client                                     
            statements.  INC and LTD are each members of a group of                                       
            controlled entities.  Consequently, INC provides administrative                               
            or other services for the benefit of another member of the group                              
            of controlled entities within the meaning of section 1.482-                                   
            2(b)(1), Income Tax Regs.31                                                                   

            31                                                                                            
                  We have previously noted that "sec. 1.482-2(b)(1), Income                               
            Tax Regs., applies to a group of controlled 'entities' while sec.                             
                                                                            (continued...)                




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