Advanced Delivery and Chemical Systems Nevada, Inc. - Page 23

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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,                    

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Last modified: May 25, 2011