Kaps Warehouse, Inc. - Page 14

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           has exceeded his discretion is a question of fact. * * * In                                
           reviewing the reasonableness of respondent's determination, the                            
           Court focuses on the reasonableness of the result, not on the                              
           details of the methodology used."  Sundstrand Corp. & Subs. v.                             
           Commissioner, supra at 353-354.                                                            
                  In addition to proving that the deficiencies herein are                             
           arbitrary, capricious, or unreasonable, petitioner has the burden                          
           of proving satisfaction of the arm's-length standard.  See Eli                             
           Lilly & Co. v. Commissioner, 856 F.2d 855, 860 (7th Cir. 1988),                            
           affg. on this issue, revg. in part and remanding 84 T.C. 996                               
                  Section 1.482-1(a)(3), Income Tax Regs., provides:                                  
                        (3) The term "controlled" includes any                                        
                        kind of control, direct or indirect,                                          
                        whether legally enforceable, and however                                      
                        exercisable or exercised.  It is the                                          
                        reality of the control which is decisive,                                     
                        not its form or the mode of its exercise.                                     
                        A presumption of control arises if income                                     
                        or deductions have been arbitrarily                                           
           The term "controlled taxpayer" means "any one of two or more                               
           organizations, trades, or businesses owned or controlled directly                          
           or indirectly by the same interests."  Sec. 1.482-1(a)(4), Income                          
           Tax Regs.  The terms "group" and "group of controlled taxpayers"                           
           mean "the organizations, trades, or businesses owned or controlled                         
           by the same interests."  Sec. 1.482-1(a)(5), Income Tax Regs.                              

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