concurring: I concur in the result reached by the majority in this case since section 482 permits the allocation not only of income but also of deductions. The net effect of respondent’s determination in this case is to allocate to MIC those portions of the interest and amortized loan costs paid by petitioners to Sackman which relate to the portions of the loans advanced by petitioners to MIC. As an allocation of a deduction, respondent’s action is clearly proper.1
Respondent’s regulations state that the purpose of section 482 is to place a controlled taxpayer “on a tax parity with an uncontrolled taxpayer.” (Sec. 1.482-l(b), Income Tax Regs.) To allocate to MIC the portions of the interest deductions and amortized loan costs paid by petitioners with respect to the funds advanced to MIC accomplishes this result, whereas the approach taken by the majority does not fully prevent the tax avoidance so very evident in this case.
Section 1.482 — 1(d)(1), Income Tax Regs., provides, in part, that:
The method of allocating, apportioning, or distributing income, deductions, credits, and allowances * * * , including the form of the adjustments and the character and source of amounts allocated, shall be determined with reference to the substance of the particular transactions or arrangements which result in the avoidance of taxes or the failure to clearly reflect income. [Emphasis added.]
In economic reality, MIC was the true borrower of the funds it received from petitioners. The loans from Sackman, to the extent petitioners advanced amounts thereof to MIC, were only formally indebtedness of petitioners. The tax avoidance here arises from the allowance of interest deductions to petitioners on the portions of the loans used by MIC. Making a proper allocation of the interest deductions and amortized loan costs (which is the substance of the adjustment made by respondent in the notice of deficiency) fully eliminates the tax avoidance here occasioned by the relationship of the parties, whereas the adjustment contended for by respondent does not.2 Furthermore, the approach adopted by the majority requires reversing our holding in Kahler Corp. v. Commissioner, 58 T.C. 496 (1972), revd. 486 F.2d 1 (8th Cir. 1973), and Kerry Investment Co. v. Commissioner, 58 T.C. 479 (1972), affd. in part and revd. in part 500 F.2d 108 (9th Cir. 1974), as well as some earlier opinions of this Court. In the Kahler and Kerry cases, we found the advancements by one related entity to another to be of the funds of the entity making the advance.3 In neither of those cases did we find a basis for the allocation of deductions between related entities; nor did we consider the propriety of such an allocation. Those cases as decided in this Court presented clearly the question of “imputed income” where no income in fact existed. The instant case, only by a most strained analysis, i.e., isolation of only part of the whole transaction, raises such an issue. This is •not the proper case in which to reconsider our position in the Kahler and Kerry cases, and I would not reconsider our position in those cases on the facts here present.
Since the net effect of respondent’s adjustment here was an allocation of interest deductions, in my view this Court may sustain his determination on that basis. It is well recognized that if respondent’s determination is correct, it may be sustained even though the reasons he gives for his action are wrong. Helvering v. Gowran, 302 U.S. 238 (1937). Petitioners were on notice that section 482 was considered applicable in this case and consequently are not prejudiced by my suggested application of section 482. Compare Commissioner v. Chelsea Products, 197 F.2d 620, 624 (3d Cir. 1952), affg. 16 T.C. 840 (1951). -
Raum, Drennen, Fay, and Tannenwald, JJ., agree with this concurring opinion.The concession by respondent relating to the proper computation of the imputed interest rate under sec. 1.482-2(a)(2), Income Tax Regs., would be ineffective under my approach.
See n. 2 of the majority opinion.
In Kahler Corp. v. Commissioner, 58 T.C. 496, 500 (1972), we made a finding to this effect. However, the Circuit Court in its opinion 486 F.2d 1, 2, stated that “during oral argument counsel for Kahler conceded that * * * Kahler owed and paid interest on total indebtedness exceeding the total * * * owed to Kahler by” its subsidiaries. In n. 8 of its opinion in Kahler (486 F.2d at 5), the Circuit Court stated that “it would have been entirely proper in this case for the Commissioner to have allocated to the subsidiaries a portion of the interest deduction taken by Kahler * * * .”