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The relative cost of the services that INC provided to LTD
is unknown, but, based upon the fact that greater than 90 percent
of INC's gross revenues came from LTD, see supra pp. 202-203, the
cost of services INC provided to LTD similarly must be relatively
large in amount. The exact amount of capital investment made by
INC with regard to rendering services to LTD is unknown. INC
did, however, establish an office in San Antonio to perform its
duties. INC’s tax returns for the years in issue show that INC
purchased an office copier, computer equipment and software, and
office equipment and furniture. In sum, INC’s capital investment
with regard to rendering services to LTD appears to have been
relatively large in amount.
The risk of loss involved in the rendition of services by
INC to LTD appears to have been relatively low. After the end of
each of the taxable years ended June 30, 1985, 1986, and 1987,
INC finalized with LTD the total amount of payments to be paid by
LTD to INC for services rendered during the preceding taxable
year. INC had a relatively low risk of loss in the rendition of
services to LTD.
The services that INC rendered to LTD were in the nature of
supporting services. INC provided administrative services that
supported LTD’s investment management business. INC’s rendition
of services did not constitute a manufacturing, production,
extraction, or construction activity. The regulations analyze
the type of services rendered--i.e., whether or not they are
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