- 212 -
We turn next to whether INC passes the benefit test of
section 1.482-2(b)(2)(i), Income Tax Regs. The regulations
provide that allocations may be made to reflect arm’s length
charges "with respect to services performed by one member of the
group exclusively for the benefit of another member of the
group." Sec. 1.482-2(b)(2)(i), Income Tax Regs. INC rendered
services exclusively for the benefit of LTD, which constituted,
in actuality, rendering services to LTD's clients. The benefits
to LTD were not so indirect or remote that unrelated parties
would not have charged for such services. Id. LTD paid INC an
annual fee for the services that INC rendered for LTD’s benefit.
Accordingly, we hold that INC passes the benefit test of section
1.482-2(b)(2)(i), Income Tax Regs.
We must next ascertain whether the services are an integral
part of the business activity of either the entity rendering the
services (renderer) or the entity receiving them (recipient)
pursuant to section 1.482-2(b)(3), Income Tax Regs., in order to
decide which regime to apply in determining INC’s arm's length
charge for its services. In their briefs, the parties did not
apply the two tests of section 1.482-2(b)(7)(ii), Income Tax
31(...continued)
1.482-1(b)(1), Income Tax Regs., describing the scope and purpose
of sec. 482, refers to a group of controlled 'taxpayers.' We
believe that the difference in language is insignificant." Haag
v. Commissioner, 88 T.C. 604, 622 n.13 (1987), affd. without
published opinion 855 F.2d 855 (8th Cir. 1988). LTD and INC are
thus both "controlled entities" and "controlled taxpayers", and
income may properly be allocated to INC to reflect arm's length
dealing pursuant to sec. 482.
Page: Previous 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 NextLast modified: May 25, 2011