Kaps Warehouse, Inc. - Page 27

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            affg. T.C. Memo. 1969-39. We thus conclude that petitioner has                            
            failed to prove any substantial uncertainty as to collection.                             
                  F.  Conclusion                                                                      
                  The income petitioner reported on its Federal income tax                            
            returns for fiscal years 1991 and 1992 did not clearly reflect its                        
            income.  Petitioner was not justified in shifting income between                          
            itself and its related entities. By granting the rebates,                                 
            petitioner essentially sold merchandise at non-arm's-length prices                        
            to its related entities, and arbitrarily shifted income between                           
            itself and its related entities.3  Petitioner has failed to prove                         
            that: (1) Respondent's determination was arbitrary, capricious or                         
            unreasonable; and (2) petitioner sold goods at arm's-length prices                        
            to its related entities.  Accordingly, respondent properly                                
            reallocated income between petitioner and its related entities                            
            under section 482, and we hold for respondent on this issue.                              
            Issue 2.  Section 6662(b)(2) Accuracy-Related Penalties                                   
                  The second issue is whether petitioner is liable for the                            
            section 6662(b)(2) accuracy-related penalties for fiscal years                            
            ended March 31, 1991 and 1992.  Respondent contends that petitioner                       
            is liable for the penalties in connection with both petitioner's                          

                  3     Petitioner claims that it was forced to shift income                          
            among its related entities because it was a victim of competitive                         
            forces over which it had no control. We are unpersuaded by                                
            petitioner's argument.  Petitioner chose to operate its business                          
            under the existing market conditions.  Petitioner cannot ignore                           
            the reality of the businesses it selected.  It was bound by the                           
            structure it chose.                                                                       

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