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pursuant to section 482 was inappropriate when the taxpayer’s
receipt of such income was prohibited by local law. The Court
concluded that section 1.482-1(b)(1), Income Tax Regs.,
contemplated that the controlling interest, i.e., the holding
company, must have “complete power” to shift income among its
subsidiaries. Id. at 404. Section 1.482-1(b)(1), Income Tax
Regs., provides, in pertinent part, as follows:
The interests controlling a group of controlled taxpayers
are assumed to have complete power to cause each controlled
taxpayer so to conduct its affairs that its transactions and
accounting records truly reflect the taxable income from the
property and business of each of the controlled taxpayers.
* * *
Thus, the Court continued, it is only when this power
exists, and has been used to understate the controlled taxpayer’s
true income, that the Commissioner is authorized to reallocate
income under section 482. Id. The Court concluded that the
holding company did not have the “complete power” to shift income
between its controlled interests unless it violated the Federal
banking laws. Moreover, the Court concluded that the “complete
power” referred to in the regulations hardly includes the power
to force a subsidiary to violate the law. Id. at 405.
Applying the same type of analysis, we hold that petitioner
could not have received commission income from AFLIC without
violating Mississippi State law as provided in Miss. Code Ann.
secs. 83-17-105 and 83-17-7 (1973) and as construed by the
Mississippi Supreme Court in Tew v. Dixieland Finance, Inc.,
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