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maintained a close-knit structure, management, and operation
despite the different levels and forms of the affiliate entities.
In certain respects, as a partnership controlled by
petitioner, the activities of ADCS-Limited had a closer business
relationship to petitioner than they would have had if ADCS-
Limited had been a corporate subsidiary of petitioner. As
explained, as a partnership, ADCS-Limited was not treated as a
taxable entity. Income taxes relating to the activities of ADCS-
Limited were the responsibility of its partners, and because its
partners (namely, Holdings LLC and Operating LLC) also were taxed
as partnerships (i.e., also as passthrough entities), the
liability for the taxes relating to the earnings and income of
ADCS-Limited was passed on to petitioner, including exposure to
an adjustment for the accumulated earnings tax, even though ADCS-
Limited, not petitioner, actually retained the earnings in
question. A conclusion that the business activities of ADCS-
Limited should not be attributable to petitioner, for purposes of
the accumulated earnings tax, would be inconsistent with the fact
that the retained earnings in question actually were held by
ADCS-Limited but the Federal income taxes relating to those
earnings were the obligation of, and were to be paid by,
petitioner.
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