- 98 -
which has substantial value independent of
the services of any individual.
Section 1.482-1(i)(5), Income Tax Regs., defines a
controlled taxpayer as follows:
(5) Controlled taxpayer means any one of two or
more taxpayers owned or controlled directly or
indirectly by the same interests, and includes the
taxpayer that owns or controls the other taxpayers.
* * *
In determining the true taxable income of a controlled
taxpayer, the standard to be applied in every case is that of a
taxpayer dealing at arm’s length with an uncontrolled taxpayer.
Sec. 1.482-1(b), Income Tax Regs. The “arm’s-length” test
commonly associated with section 482 is equally applicable in
ascertaining the “ordinary and necessary” character of a payment
to a related party that is deducted under section 162(a). R.T.
French Co. v. Commissioner, 60 T.C. 836, 849 (1973). A
controlled transaction meets the arm’s-length standard if the
results of the transaction are consistent with the results that
would have been realized if uncontrolled taxpayers had engaged in
the same transaction under the same circumstances (arm’s-length
result). Sec. 1.482-1(b), Income Tax Regs.
Petitioners argue that the "White Paper", "A Study of
Intercompany Pricing Under Section 482 of the Code," I.R.S.
Notice 88-123, 1988-2 C.B. 458, referred to legislative rejection
of R.T. French Co. The White Paper addressed only the view that
a long-term fixed rate royalty agreement could not be adjusted
under section 482 based on actual events. Notice 88-123, 1988-2
Page: Previous 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 NextLast modified: May 25, 2011