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all of its costs were charged to the purchasing members as fees
for those services. Thus, we find that BKK rendered services to
related parties as one of its principal activities. As a
consequence, rendering services was an integral part of BKK’s
business activity within the meaning of section 1.482-
2(b)(7)(ii), Income Tax Regs. Because of that, the cost or
deductions incurred by BKK with respect to the services rendered
by BKK to the purchasing members (and passed through to the
purchasing members) is not deemed equal to an arm's-length charge
for those services. See sec. 1.482-2(b)(3), Income Tax Regs.
Instead, an arm's-length charge is the amount that would have
been charged for the same or similar services in independent
transactions with or between unrelated parties under similar
circumstances considering all the relevant facts (the independent
transactions standard). Id.
Before concluding this discussion of arm's-length charges,
it is important to note that we are not here concerned with the
arm's-length charge for the totality of services provided by BKK
to the purchasing members for each year (BKK's total yearly
fees), which respondent does not challenge, but rather with the
allocation of BKK's total yearly fees among the purchasing
members.
E. Reasonableness of Allocation
1. Respondent’s Reallocation
Respondent’s reallocation is reflected in the statutory
notice of deficiency received by each petitioner. Each such
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