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understated by $176,548 and $155,000, respectively, on the basis of
the rebates petitioner gave to its related entities. Respondent
determined that the reduction of petitioner's income on account of
the rebates was improper because the rebates were not at arm's
length. Respondent also determined that petitioner was liable for
the section 6662(b)(2) accuracy-related penalties for both years at
issue.
OPINION
Issue 1. Reallocation of Income
We first consider respondent's reallocation of income to
petitioner from three of its related entities pursuant to section
482 for fiscal years 1991 and 1992.
A. Relevant Section 482 Law
Section 482 grants the Commissioner broad discretion to
scrutinize transactions between commonly controlled taxpayers and
to allocate items of income, deductions, and credits between them
where necessary to prevent the evasion of taxes or to ensure the
clear reflection of each taxpayer's income.2 See, e.g., Paccar,
2 Sec. 482 provides, in pertinent part, as follows:
In any case of two or more
organizations, trades, or businesses * * *
owned or controlled directly or indirectly by
the same interests, the Secretary may
distribute, apportion, or allocate gross
income, deductions, credits, or allowances
between or among such organizations, trades,
or businesses, if he determines that such
(continued...)
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