Investment Research Associates - Page 207




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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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