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that LTD actually received, even on a gross basis, from its
clients. Petitioners argue that the law does not permit
allocation from a parent to a subsidiary of an amount that is
more than the amount that the parent itself actually received.
Petitioners argue that such an allocation would constitute the
creation, rather than the allocation, of income. Petitioners
also contend that the allocations are inconsistent with our
stated intention to allocate only the "fees that LTD charged its
unrelated clients" because those charges represented the arm's-
length charge within the meaning of section 1.482-2(b)(3), Income
Tax Regs.
Petitioners argue that the maximum allocation to INC should
be the net amount of revenues actually received by LTD for
placing the client funds with third parties. Petitioners contend
that, as respondent's notice of deficiency used a net figure,
viz, LTD's income after direct expenses, in making the original
section 482 allocations, respondent acknowledges that a
allocation of gross receipts is not justified. Alternatively,
petitioners contend that even an allocation of the net amount of
revenues is "excessive", arguing that the evidence shows that INC
did nothing to "manage" the deposits and only made "bookkeeping
entries". As a final alternative argument, petitioners argue
that the FEIM Fund allocation from LTD to INC should be reduced
to zero because of our finding that "INC's only role was to
arrange for transfer of the client funds to Merrill Lynch in
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