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adjustment "shall actually be made" and the district director
"shall decrease the income of the other member". We believe that
petitioners' argument fails to appreciate the procedure regarding
correlative adjustments set forth in the regulations.
Accordingly, we believe that it would be helpful to expand upon
what we stated in our prior opinion.
Section 1.482-1(d)(2), Income Tax Regs., provides that, in
the event that an appropriate correlative adjustment is made by
the district director, it shall be treated in one of two
alternative ways: The correlative adjustment either (1) shall
actually be made or (2) shall be deemed to have been made. The
proper treatment of a correlative adjustment, if one is made by
the district director, depends on whether or not the U.S. income
tax liability of the "other member" of the group of controlled
taxpayers involved in the allocation (i.e., the taxpayer entitled
to receive an appropriate correlative adjustment) would be
affected for any pending taxable year.
The regulations provide that, in the event that an
appropriate correlative adjustment is made by the district
director, if the U.S. income tax liability of the other member
would be affected for any pending taxable year, "The correlative
adjustment shall actually be made." Sec. 1.482-1(d)(2), Income
Tax Regs. Alternatively, the regulations provide that, in the
event that an appropriate correlative adjustment is made by the
district director, if the U.S. income tax liability of the other
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