- 27 -
and fiduciaries. Additionally, petitioners seek to reduce the
client incorporation fees to an amount that petitioners contend
reflects INC's actual contribution to the receipts LTD earned;
i.e., no more than a flat, nominal fee for each incorporation.
We disagree.
In our prior opinion, we found that clients paid LTD to
establish offshore corporations and trusts to hold their
investments. LTD charged its clients:8 (1) an "opening
expense", which consisted of LTD's fee and fees for third party
lawyers and fiduciaries, and (2) an "annual expense". The record
establishes that the creation of those offshore corporations and
trusts included the performance of services by INC as well as by
third party lawyers and fiduciaries. On behalf of LTD, INC
managed the paperwork for establishing and maintaining the
offshore corporations and trusts while the third party lawyers
and fiduciaries created the offshore corporations and trusts.
We disagree with petitioners' argument that LTD's payments
to third party lawyers and fiduciaries should be "deducted" from
LTD's gross receipts in deciding the arm's-length fees for INC's
services. An arm's-length charge within the meaning of section
1.482-2(b)(3), Income Tax Regs., is an "amount which was charged
or would have been charged for the same or similar services in
8 As we noted supra and in our prior opinion, the record
reveals instances in which LTD dealt with "related" or favored
clients who were charged lower or no fees.
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