Inverworld, Inc., et al. - Page 18

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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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