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concluded that arm’s-length royalties should be $83,129,000 for
1982 through 1992 or $57,095,000 for 1984 through 1992,
respectively.
With respect to imbalance and transfer fees, duplications
were contained in the notices of deficiency. The imbalance
adjustments included the cost of deliveries that had already been
reported on petitioners’ returns. The determination, in addition
to the cost amounts, added a 15-percent markup instead of the 2-
percent markup reported. Respondent’s trial expert, however,
recommended a 4-percent markup, and respondent, for purposes of
trial, conceded that the determination was overstated to the
extent of the cost duplication portion of the above-described
adjustment.
Finally, with respect to the network fee, the adjustment
contained some duplication. Respondent’s trial expert on this
subject used a differing terminology to describe his proposed
adjustment, and petitioners argue that either respondent has
therefore abandoned the network fee adjustment set forth in the
notices of deficiency or the network fee determination must be
regarded as arbitrary, capricious, and unreasonable. Respondent
counters that the network fee adjustment has not been abandoned
and the approach taken in the notices and by the respondent’s
trial expert are reasonable.3
3 Due to our holding on the network fee issue, it is
unnecessary to decide the parties’ contentions.
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