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Regs. As to the 25-percent test, the cost of services of INC
attributable to its rendition of services to LTD can be
extrapolated from the proportion of INC's revenues earned from
LTD to INC's total revenues. In the taxable year ended 1985,
with gross revenues of $618,190, INC reported $582,000 of revenue
from LTD, or 94.1 percent of its gross revenues from LTD. In the
taxable year ended 1986, with gross revenues of $953,583, INC
reported $945,000 of revenue from LTD, or 99.1 percent of its
revenue from LTD. In the taxable year ended 1987, with gross
revenues of $1,395,545, INC reported $1,281,000 of revenue from
LTD, or 91.8 percent of its gross revenues from LTD. In the
taxable year ended 1988, with gross revenues of $1,532,579, INC
reported $1,440,000 of revenue from LTD, or 94.0 percent of its
gross revenues from LTD. In the taxable year ended 1989, with
gross revenues of $1,909,563, INC reported $1,830,000 of revenue
from LTD, or 95.8 percent of its gross revenues from LTD.
Assuming that INC's revenues attributable to its rendition of
services for the taxable year to LTD, when expressed as a
percentage of INC's gross revenues, are commensurate with the
costs of services INC provides for LTD, we conclude that INC
meets the 25-percent floor in each taxable year ended 1985
through 1989.
Once the 25-percent test is satisfied, the regulations
provide a second test, which is a determination of whether the
rendition of services to related parties is one of the principal
activities of the renderer based on a facts and circumstances
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