- 229 - Following the second path, if LTD files a U.S. income tax return by the time the primary adjustment is made, LTD will be precluded from taking its correlative adjustment, which would be in the form of a section 882(c)(1)(A) deduction. The form of a section 482 allocation, including the character and source of amounts allocated, follows the substance of the particular transaction that results in the avoidance of taxes or the failure to reflect income clearly. Sec. 1.482-1(d)(1), Income Tax Regs. Appropriate adjustments may include, inter alia, an increase or decrease in gross income, or an increase or decrease in deductions. Id. In the instant case, the substance of the particular transaction that results in the avoidance of taxes was an underpayment by LTD to INC of fees for the performance of personal services. The form of the section 482 allocations to INC and LTD follows the substance of such transaction and therefore consists of additional compensation for services for INC and additional compensation expenses for LTD. Accordingly, the character and source of the amounts allocated are: For INC, personal services income from sources within the United States includable in INC's gross income pursuant to section 61(a)(2), and, for LTD, additional compensation expenses includable in LTD's trade or business deductions pursuant to section 882(c)(1)(A). The form of the correlative adjustment to LTD’s income is, therefore, an increase in the amount LTD is entitledPage: Previous 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 Next
Last modified: May 25, 2011