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Commissioner, 35 B.T.A. 764, 768 (1937). Respondent contends
that section 882(c)(2) protects respondent from having to perform
the almost impossible task of properly apportioning and
allocating deductions for an uncooperative foreign taxpayer.
In the instant cases, at this time, there exist two paths
for deciding whether LTD is entitled to a correlative adjustment,
but pursuant to either one, the result is the same: LTD is not
entitled to a correlative adjustment to its income. Following
the first path, if LTD does not file a U.S. income tax return by
the time the primary adjustment is made, LTD will fall out of the
section 482 regime entirely and will therefore be ineligible to
receive a correlative adjustment to its income.
A correlative adjustment is made to the income of a taxpayer
only if such adjustment would have an effect on the U.S. income
tax liability of the taxpayer for any pending taxable year. Sec.
1.482-1(d)(2), Income Tax Regs. A "pending taxable year" is "any
taxable year with respect to which the United States income tax
return of the other member has been filed by the time the
allocation [the primary adjustment] is made, and with respect to
which a credit or refund is not barred by the operation of any
law or rule of law." Id. If LTD fails to file a U.S. income tax
return by the time the primary adjustment is made, LTD will have
no "pending taxable year" within the meaning of section 1.482-
1(d)(2), Income Tax Regs., and will therefore be ineligible for a
correlative adjustment to its income.
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