- 67 -
tributable to the fact that Mr. Holdren's analyses were based on
accounting principles and the analyses in the BVS report were
based primarily on economic principles. Both accounting and
economic analyses seem to be reasonable and appropriate methods
of analysis for purposes of section 954(d)(1). Compare sec.
1.954-3(a)(4)(iii), Income Tax Regs., with S. Rept. 1881, supra,
1962-3 C.B. 703, 790.
Nonetheless, we have reservations regarding the respective
analyses performed by Mr. Holdren and the three individuals who
prepared the BVS report. For example, with respect to Mr.
Holdren, he adopted the classifications that B&L Ireland and B&L
Hong Kong used to classify certain purchased parts as either
direct or indirect materials, rather than making his own indepen-
dent determinations of such classifications. Although the clas-
sifications used by B&L Ireland and by B&L Hong Kong are not
necessarily inappropriate for management accounting purposes,
there appear to be different, acceptable methods of classifying
certain types of materials for those purposes. Petitioners have
not convinced us that the classification method chosen by B&L
Ireland and by B&L Hong Kong, and adopted by Mr. Holdren, is the
most appropriate method for purposes of section 954(d)(1) and the
regulations thereunder.35
35 We also note that Mr. Holdren admitted at trial that he made
(continued...)
Page: Previous 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 NextLast modified: May 25, 2011