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of tax liability by court action. A correlative adjustment is
not required to be made until a primary adjustment is made. Sec.
1.482-1(d)(2), Income Tax Regs. As the primary adjustment is not
considered to have been made until a final determination of tax
liability by court action, a correlative adjustment is also not
required to be made until that time. Accordingly, as a final
determination of tax liability by court action will not occur
until after the issuance of this opinion, the correlative
adjustment is not required to be made until after issuance of
this opinion. The record, however, contains all facts necessary
to decide, at this point, whether LTD is entitled to a
correlative adjustment.
Petitioners contend that "As a matter of law, if not simple
logic, should the * * * [Tax] Court reallocate any amount of
LTD’s income to INC, then LTD’s taxable income should be reduced
in equal amount." Petitioners cite the correlative adjustment
provisions of section 1.482-1(d)(2), Income Tax Regs., as support
for the treatment of any section 482 allocation of income to INC
as a deduction to LTD. Petitioners note that denying the
deduction of the section 482 correlative adjustment to LTD
results in taxing the same dollar twice: once in the hands of
LTD and once in the hands of INC.
Respondent agrees that LTD would ordinarily be entitled to a
correlative adjustment equal to the primary adjustment to INC.
Respondent notes, however, that deductions are a matter of
legislative grace and not a matter of right. Gladstone Co. v.
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