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Petitioners seek to lessen their burden with respect to each
and every section 482 adjustment in controversy. Petitioners’
burden is to show that each section 482 adjustment is arbitrary,
capricious, and unreasonable. To do that, taxpayers normally
show that the questioned transactions were conducted under an
arm’s-length standard. For purposes of seeking a lesser burden,
petitioners do not address the ultimate question of what the
proper arm’s-length standard is. Instead, they argue that
respondent’s notices of deficiency are generally arbitrary
because of failure to provide advance notification of the
proposed determinations and because each of the section 482
determinations differs from the amounts, positions, and evidence
offered by respondent at trial.
In Perkin-Elmer Corp. v. Commissioner, T.C. Memo. 1993-414,
the Commissioner based the notice of deficiency section 482
determination on a particular theory and then abandoned that
theory before trial. It was held that those circumstances were
sufficient for the taxpayer to meet “its burden of showing
respondent’s allocations to be arbitrary, capricious, or
unreasonable.” Therefore the taxpayer in that case needed only
to show that the questioned transactions were arm’s length.
In National Semiconductor Corp. & Consol. Subs. v.
Commissioner, T.C. Memo. 1994-195, the determinations in the
notice of deficiency were based on a different methodology than
the Commissioner’s expert relied on at trial. In addition to the
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