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financial need. The purpose of the above-quoted regulation,
however, is to keep the Commissioner from missing or selectively
choosing only those allocations that would increase a taxpayer’s
income.
A procedural point also has surfaced concerning the setoff
question. Section 1.482-1(d)(3), Income Tax Regs., provides for
taxpayers to give notice to the district director as to the basis
of claimed setoffs within 30 days of an examination report that
notifies the taxpayer of proposed adjustments. One stated
purpose for this provision is to allow the examining agent
sufficient time to correct erroneous allocations. See Rev. Proc.
70-8, 1970-1 C.B. 434. Clearly, the notice requirement, in the
context of the pre-statutory-notice period, is to facilitate
complete or thorough determinations.
Respondent, however, did not provide petitioners with an
examination report before the issuance of the notices of
deficiency. Accordingly, petitioners could not give notice of
setoffs to the district director within 30 days of an examination
report. In this situation, petitioners argue that section 1.482-
1(d)(3), Income Tax Regs., has no application. Petitioners did
provide notice of claimed setoffs after respondent issued the
deficiency notices.
Respondent, without commenting on the regulatory
requirement, complained that petitioners waited until the last
possible moment to raise the issue of valuation of the technology
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