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proposed by respondent at trial are attributable to information
acquired by respondent after issuance of the notices of
deficiency. Ultimately, the factual information exchanged by the
parties and then offered into evidence forms the basis for our
opinion. The amounts decided are considerably less than the
amounts determined in the notices. The decided amounts, however,
fall somewhere in between the extreme trial positions of the
parties.
The large difference between the amounts contained in
respondent’s notices and those proposed at trial and the
differences between the parties’ trial positions are largely
attributable to the assumptions adopted by the parties’ experts.
For example, respondent’s in-house expert used a 15-percent
markup on the imbalance costs, whereas respondent’s trial expert
used a 4-percent markup. Ironically, because petitioners’ expert
advocated a full cost approach to the imbalance adjustment, he
was able to appear magnanimous by using the same 15-percent
markup that had been used by respondent’s in-house expert in the
notice. This serves to illustrate that differences in
assumptions made large differences in the determinations and the
parties’ positions. The assumptions relied on by respondent were
not arbitrary, capricious, or unreasonable considering the
circumstances here.
Accordingly, respondent’s notice determinations, although
resulting in determinations at the outside margins, represent a
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