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adjustments are necessary to avoid multiple taxation of the same
income.
Petitioners' argument that the regulations provide for a
correlative adjustment "in all circumstances" is without merit.
Section 1.482-1(d)(2), Income Tax Regs., provides that the
district director, whenever making primary adjustments, "shall
also make appropriate correlative adjustments". (Emphasis
added.) We believe that the term "appropriate" serves to limit
the application of a correlative adjustment so that a correlative
adjustment is not made "in all circumstances", but, rather, only
when "appropriate". Sec. 1.482-1(d)(2), Income Tax Regs.
Additionally, section 1.482-1(d)(1), Income Tax Regs., which
addresses all section 482 adjustments (as opposed to section
1.482-1(d)(2), Income Tax Regs., which addresses only primary and
correlative adjustments), requires that all adjustments be
"appropriate".14
14 Section 1.482-1(d)(1), Income Tax Regs., provides:
The method of allocating, apportioning, or
distributing income, deductions, credits, and
allowances to be used by the district director in any
case, including the form of the adjustments and the
character and source of amounts allocated, shall be
determined with reference to the substance of the
particular transactions or arrangements which result in
the avoidance of taxes or the failure to clearly
reflect income. The appropriate adjustments may take
the form of an increase or decrease in gross income,
increase or decrease in deductions (including
depreciation), increase or decrease in basis of assets
(including inventory), or any other adjustment which
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