Taxpayer Activities Distorting True Net Income; Proper Computation by Commissioner; Determination of Taxable Income of Corporations Engaging in Improper Activities; Consideration of Potential Reasonable Profits

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  2. Georgia Code
  3. Revenue and Taxation
  4. Income Taxes
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  6. Taxpayer Activities Distorting True Net Income; Proper Computation by Commissioner; Determination of Taxable Income of Corporations Engaging in Improper Activities; Consideration of Potential Reasonable Profits

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  1. When the commissioner has reason to believe that any taxpayer conducts his or her trade or business so as to evade taxes, distort directly or indirectly his or her true net income, or distort directly or indirectly the net income properly attributable to this state, whether by the arbitrary shifting of income, through price fixing, charges for service, or otherwise, as a result of which the net income is arbitrarily assigned to a person related to the taxpayer, the commissioner may require the facts as he or she deems necessary for the proper computation of the entire net income and the net income properly attributable to this state. In determining the computation, the commissioner shall consider the fair profit which would normally arise from the conduct of the trade or business. The commissioner shall by regulation provide when to apply this subsection.
    1. Additionally, the commissioner may determine the amount of taxable income of any one or more corporations for a calendar or fiscal year when a corporation:
      1. Subject to taxation under this chapter conducts its business in such manner as to benefit either directly or indirectly the members or stockholders of the corporation or any person interested in the business of the corporation by selling its products or the goods or commodities in which it deals at less than the fair price which might be obtained for the goods or commodities;
      2. A substantial portion of whose capital stock is directly or indirectly owned by another corporation acquires and disposes of the products of the corporation so owning a substantial portion of its stock in such a manner as to create a loss or improper net income for either of the corporations; or
      3. Directly or indirectly owning a substantial portion of the stock of another corporation acquires and disposes of the products of the corporation of which it so owns a substantial portion of the stock in such a manner as to create a loss or improper net income for either of the corporations.
    2. In his or her determination, the commissioner shall consider the reasonable profits which, but for the arrangement or understanding, might or could have been obtained by the corporation or corporations subject to taxation under this chapter from dealing in such products, goods, or commodities.

(Ga. L. 1931, Ex. Sess., p. 24, § 31; Code 1933, § 92-3209; Code 1933, § 91A-3707, enacted by Ga. L. 1978, p. 309, § 2; Ga. L. 2005, p. 159, § 18/HB 488.)

Editor's notes.

- Ga. L. 2005, p. 159, § 1/HB 488, not codified by the General Assembly, provides that: "This Act shall be known and may be cited as the 'State and Local Tax Revision Act of 2005.'"

JUDICIAL DECISIONS

Construction with provisions of

§ 48-7-31 as to subsidiaries and affiliates. - Bifurcated accounting rule of former Code 1933, § 92-3113(6) (see now O.C.G.A. § 48-7-31) did not render former Code 1933, § 92-3209 (see now O.C.G.A. § 48-7-58) meaningless because the purpose of that section is much broader than specific accounting rules provided in former Code 1933, § 92-3113. Blackmon v. Campbell Sales Co., 125 Ga. App. 859, 189 S.E.2d 474 (1972).

Scope of commissioner's authority.

- Discretionary authority granted under this section may be applied to taxpayers who are shifting income, whether operating wholly within this state, or within and outside the state, but the statute contains no authority for combining the income of related corporations. Blackmon v. Campbell Sales Co., 125 Ga. App. 859, 189 S.E.2d 474 (1972).

Transfer of goods and services for fixed percentages and performance of services for subsidiaries without specific charges do not necessarily reveal a distortion of true net income whether by the arbitrary shifting of income, through price-fixing, charges for service, or otherwise so that a fair profit is not shown, as contemplated under former subsection (a) of this section or manipulations to create a loss or improper net income so that reasonable profits are not shown, as contemplated under former subsection (b). Blackmon v. Campbell Sales Co., 125 Ga. App. 859, 189 S.E.2d 474 (1972).

RESEARCH REFERENCES

C.J.S.

- 85 C.J.S., Taxation, §§ 2003, 2004, 2042 et seq.


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