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C. Abuse of Discretion Issue
1. Standard of Proof
The standard of review of respondent's determination under
section 6038A(e)(3) is liberal. Whereas the word "discretion"
does not appear in section 482, when the noncompliance penalty of
section 6038A(e)(3) applies, "the amount of the deduction * * *
and the cost * * * of any property * * * shall be the amount
determined by the Secretary in the Secretary's sole discretion
from the Secretary's own knowledge or from such information as
the Secretary may obtain through testimony or otherwise."
(Emphasis added.) The conference committee report offers
guidance to a court reviewing respondent's determination under
section 6038A(e)(3):
The conferees intend that a taxpayer seeking
judicial review of the exercise of the Secretary's sole
discretion under the noncompliance rules shall bear the
burden of proof by clear and convincing evidence that
the Secretary abused that discretion. The conferees do
not intend to foreclose a court from overturning a
determination by the Secretary that was proven (by
clear and convincing evidence) either to have been made
with improper motive, or to have been clearly erroneous
by reference to all reasonably credible interpretations
or assumptions of facts. On the other hand, the
conferees do not expect a court to overturn a
determination unless it could do so even after
accepting as true all allegations and inferences that
may support the Secretary's position. [H. Conf. Rept.
101-386, at 594 (1989).]
The conference committee report also states:
Under the conference agreement, in cases of
noncompliance, the amount of any deduction for any
amount paid or incurred to the related party by the
reporting corporation, or the cost of property
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