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Court must determine the proper allocation of items based upon
the record. See Eli Lilly & Co. v. Commissioner, supra;
Sundstrand Corp. & Subs. v. Commissioner, supra.
Accordingly, our task is to examine whether petitioners met
the arm's-length standard. That standard is met by an arm's-
length charge. Secs. 1.482-1(b), 1.482-2(b)(3), Income Tax Regs.
An arm's-length charge is defined as "the amount which was
charged or would have been charged for the same or similar
services in independent transactions with or between unrelated
parties under similar circumstances considering all relevant
facts." Sec. 1.482-2(b)(3), Income Tax Regs. Significantly, the
regulations do not inquire into or limit the allocation to the
taxpayer's actual earnings. As we found in our prior opinion,
LTD's actual earnings include amounts which were charged to
"related" or favored clients.6 Consequently, as LTD's actual
earnings include amounts that are less than arm's-length charges,
the arm's-length standard found in the section 482 regulations is
not limited by LTD's actual earnings.
6 Moreover, we conclude that, in any case, the record does not
establish LTD's "actual earnings" as to the Currency Fund and the
FEIM Fund from which to make a comparison. According to the
Deloitte workpapers, management fees as to both the Currency Fund
and the FEIM Fund were charged by LTD against the funds
themselves and were placed in the general category of Management
Fees, not in the individual income categories for the Currency
Fund and the FEIM Fund. After searching the record, we were
unable to ascertain the precise amount of management fees
attributable to the Currency Fund and the FEIM Fund.
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