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test. Sec. 1.482-2(b)(7)(ii)(a), Income Tax Regs. Factors which
may be considered in such determination include:
the time devoted to the rendition of the services *
* * [to related parties], the relative cost of the
services, the regularity with which the services are
rendered, the amount of capital investment, the risk of
loss involved, and whether the services are in the
nature of supporting services or independent of the
other activities of the renderer. * * * [Id.]
The regulations do not define a "related party" for purposes
of section 1.482-2(b)(7)(ii)(a), Income Tax Regs. INC and LTD,
however, are members of a group of controlled entities within the
meaning of section 1.482-2(b)(1), Income Tax Regs., and INC is a
wholly owned subsidiary of LTD. Consequently, we believe that
INC and LTD are "related parties" within the meaning of section
1.482-2(b)(7)(ii)(a), Income Tax Regs.
In the instant cases, nearly all of INC's activities were
devoted to the rendition of services to a related party, LTD.
INC rendered services to LTD, which constituted, in reality, the
rendering of services to LTD's clients. INC researched the
financial institutions and interest rates for the certificate of
deposit operation. Additionally, INC regularly rendered services
to LTD. INC performed the day-to-day functions for the
certificate of deposit operation, which included placing the
funds as directed by the clients and collecting interest and
dividends at the proper maturity, depositing such items into the
client’s account or LTD’s accounts, and reinvesting funds if
necessary.
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