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In order to justify a reallocation under section 482, the
Commissioner must find (1) that there are two or more trades,
businesses, or organizations, (2) that such enterprises are owned
or controlled by the same interests, and (3) that the
reallocation is necessary to allocate income among the two or
more enterprises in order to prevent evasion of taxes or to
properly reflect each enterprise's income. See B. Forman Co. v.
Commissioner, 453 F.2d 1144, 1152 (2d Cir. 1972), affg. in part,
revg. in part 54 T.C. 912 (1970).
Section 482 was intended to apply and has been applied to
cases where the profits of one business have been offset against
the losses of another to reduce or escape tax liability. See Ach
v. Commissioner, 42 T.C. 114 (1964), affd. 358 F.2d 342 (6th Cir.
1966).
In these cases, there was shifting of profits from one
business to another (from petitioners to the various Kanter
entities); thus the primary evil that section 482 was designed to
prohibit is present. We hold that respondent's reallocation
under section 482 was not unreasonable.
4. Conclusion
We have found that 70 percent of the payments from Hyatt to
KWJ Corp., all of the payments by Frey to Zeus, all of the
payments from Schaffel to IRA, the bargain element in the sale of
the Schnitzer-PMS stock to IRA, and all of the Essex
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