(i) The facts are the same as in Example 1, except that Eurodrug’s actual profits earned were much higher than the projected profits, as follows:
| Profit projections |
Actual profits | |
| Year 1 | 200 | 250 |
| Year 2 | 250 | 500 |
| Year 3 | 500 | 800 |
| Year 4 | 350 | 700 |
| Year 5 | 100 | 600 |
| Total | 1400 | 2850 |
(ii) In examining USdrug’s tax return for Year 5, the district director considers the actual profits realized by Eurodrug in Year 5, and all past years. Accordingly, although Years 1 through 4 may be closed under the statute of limitations, for purposes of determining whether an adjustment should be made with respect to the royalty rate in Year 5 with respect to Nosplit, the district director aggregates the actual profits from those years with the profits of Year 5. However, the district director will make an adjustment, if any, only with respect to Year 5.