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that it does not represent an arm’s-length approach. In other
words, petitioners’ suggested approach for total cost is not “any
other nonarm’s length transaction”. Instead, it represents
nothing more than an alternative position being argued for
purposes of trial. Accordingly, further consideration of whether
respondent should have permitted such a setoff in accord with the
above provision of the regulation is unnecessary.
Concerning the LaserNet item, petitioners offered an expert
in software technology who opined that the LaserNet technology
sold by DHL to DHLI in 1984 had a value of between $1 million and
$1.45 million, rather than the $14.5 million price paid by DHLI.
Accordingly, petitioners seek a $13.05 million setoff to the 1984
allocation. Respondent’s 1984 imbalance, transfer, and royalty
allocations, as advanced at trial, are less than the proposed
setoff amount, and accordingly no 1984 adjustment would result if
petitioners are sustained on this item. As a factual matter, we
have found that a major purpose of the sale of LaserNet from DHL
to DHLI was to raise capital for DHL, which was engaged in
expansion and experiencing financial difficulties.
The peculiarity of this situation is that petitioners, who
first argued that they were not commonly controlled during 1984
and that all transactions between the entities were at arm’s
length, now admit and urge that this transaction was not at arm’s
length; i.e., that more than fair market value was paid as a
pretense for a capital contribution from DHLI to DHL at a time of
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