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Section 482 authorizes the Secretary to apportion or
allocate income between organizations controlled by the same
interests 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 such organizations. The
relevant regulation explains that the purpose of section 482 is
to place a controlled taxpayer on a tax parity with an
uncontrolled taxpayer, and to ensure that controlling entities
conduct their subsidiaries' transactions in such a way as to
reflect the "true taxable income" of each controlled taxpayer.
Sec. 1.482-1A(b)(1), Income Tax Regs.50
50
Sec. 1.482-1A(b)(1), Income Tax Regs provides:
The purpose of section 482 is to place a controlled taxpayer
on a tax parity with an uncontrolled taxpayer, by
determining, according to the standard of an uncontrolled
taxpayer, the true taxable income from the property and
business of a controlled taxpayer. The interests
controlling a group of controlled taxpayers are assumed to
have complete power to cause each controlled taxpayer so to
conduct its affairs that its transactions and accounting
records truly reflect the taxable income from the property
and business of each of the controlled taxpayers. If,
however, this has not been done, and the taxable incomes are
thereby understated, the district director shall intervene,
and, by making such distributions, apportionments, or
allocations as he may deem necessary of gross income,
deductions, credits, or allowances, or of any item or
element affecting taxable income, between or among the
controlled taxpayers constituting the group, shall determine
the true taxable income of each controlled taxpayer. The
standard to be applied in every case is that of an
uncontrolled taxpayer dealing at arm's length with another
uncontrolled taxpayer.
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