- 19 - Luxembourg and to include a monthly statement of the client's allocated share of the fund value". We first examine petitioners' argument that the section 482 allocations lead to the "creation" of income. We have previously held that Smith-Bridgman & Co. v. Commissioner, 16 T.C. 287 (1951), and its progeny, which enunciated the doctrine that section 482 and its predecessor may not be used to "create" income, were vitiated by subsequent regulations issued in 1968. Latham Park Manor, Inc. v. Commissioner, 69 T.C. 199, 215-216 (1977)(allocating interest income to two subsidiary corporations that made interest-free loans to their parent corporation, even though the parent corporation produced no income from the loan proceeds during the taxable years), affd. without published opinion 618 F.2d 100 (4th Cir. 1980). Accordingly, petitioners' reliance on Smith-Bridgman and similar cases is misplaced. Moreover, we conclude that petitioners' argument that the inquiry should be limited to the actual amounts of fees or commissions that LTD itself earned is without merit. In addition to overcoming respondent's presumption of correctness, under the law applicable to this case, petitioners have the burden of proving satisfaction of the arm's-length standard. See Eli Lilly & Co. v. Commissioner, 856 F.2d 855, 860 (7th Cir. 1988), affg. in part and revg. in part 84 T.C. 996 (1985); Sundstrand Corp. & Subs. v. Commissioner, 96 T.C. 226, 354 (1991), affd. 17 F.3d 965 (7th Cir. 1994). If petitioners fail to carry that burden, thePage: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Next
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