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Ms. Hamilton prepared a "what if" scenario showing the
resulting profit attributable to petitioner for gross profit
spreads of 10 percent through 15 percent. In her report on Form
4665, Report Transmittal, Ms. Hamilton states, "Providing a
commission [gross profit spread] in the upper range insures that
the TP will report profits from its activities. In no case
should the commission be reduced below 10 percent. Ten percent
(10%) is the lowest commission which would result in profit (See
What-if Scenario workpaper)." If the gross profit spread was
below 10 percent there would be no tax liability. Ms. Hamilton
testified that there would be no need to process the case if no
additional tax liability would result.
Ms. Hamilton was guided by temporary regulations under
section 482 which indicated that ranges should be used, even
though she believed the regulations did not apply retroactively.
As a result of the examination and based upon the
information she had, Ms. Hamilton determined that based on the
additional functions petitioner performed, it should receive a
gross profit spread above the average commission rate shown in
the MANA Research Bulletin for sales services alone. For the
additional services and functions, Ms. Hamilton determined that
petitioner should be compensated an additional 5 percent above
the average rate of approximately 10 percent as shown in the MANA
materials.
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