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OPINION
1. Analysis of Arm’s-Length Royalties for Use of
Intangibles
a. Section 482 in General
Section 4826 gives respondent broad authority to allocate
income, deductions, credits, or allowances between commonly
controlled organizations, trades, or businesses if respondent
determines that the reallocation is necessary to prevent the evasion
of taxes or clearly to reflect the income of the controlled
entities. The purpose of section 482 is to prevent the artificial
shifting of the net incomes of controlled taxpayers by placing
controlled taxpayers on par with uncontrolled, unrelated taxpayers.
Seagate Tech., Inc. & Consol. Subs. v. Commissioner, 102 T.C. 149,
163 (1994); Sundstrand Corp. v. Commissioner, 96 T.C. 226, 352-353
(1991); see also Bausch & Lomb, Inc. v. Commissioner, 92 T.C. 525,
581 (1989), affd. 933 F.2d 1084 (2d Cir. 1991); Edwards v.
6 Sec. 482 provides as follows:
In any case of two or more organizations, trades, or
businesses (whether or not incorporated, whether or not
organized in the United States, and whether or not
affiliated) owned or controlled directly or indirectly by
the same interests, the Secretary may distribute, apportion,
or allocate gross income, deductions, credits, or allowances
between or among such organizations, trades, or businesses,
if he determines that such distribution, apportionment, or
allocation is necessary in order to prevent evasion of taxes
or clearly to reflect the income of any of such
organizations, trades, or businesses. In the case of any
transfer (or license) of intangible property (within the
meaning of section 936(h)(3)(B)), the income with respect to
such transfer or license shall be commensurate with the
income attributable to the intangible.
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