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arm's-length price to each of the purchasing corporations. Ms.
Moore was of the opinion that “the management costs allocated by
BKK Corporation for managerial and administrative services are
not accurately allocated based on value-add [sic] to the
operating restaurant entities.” Ms. Moore also reached a
conclusion as to a fair allocation of such costs. Ms. Moore was
accepted by the Court as an expert with respect to business
valuation, and her report was received into evidence as her
expert testimony.
2. Petitioners' Allegations
Petitioners recognize that they must show that respondent
abused his discretion: They must show that respondent’s
allocations are arbitrary, capricious, or unreasonable.2 See,
e.g., Bausch & Lomb, Inc. v. Commissioner, 92 T.C. at 582.
Ms. Camper testified that she allocated BKK's total yearly fees
among the purchasing members based primarily on gross sales, with
some adjustments with respect to the realty holding corporations,
which did not have any sales (respondent's method). Although
petitioners allege that their allocation (which is based on the
2 The case law interpreting sec. 482 illustrates that there is
some ambiguity as to whether the taxpayer has the burden of
proving that (1) the amount of the allocation proposed by the
Commissioner is arbitrary, capricious, or unreasonable, or
(2) the method or theory upon which the allocation was based is
arbitrary, capricious, or unreasonable. Compare Perkin-Elmer
Corp. & Subs. v. Commissioner, T.C. Memo. 1993-414 (theory was
arbitrary, and capricious), with Sundstrand Corp. & Subs. v.
Commissioner, 96 T.C. 226, 354 (1991) (result was arbitrary and
capricious), and Eli Lily & Co. v. United States, 178 Ct. Cl.
666, 676, 372 F.2d 990, 997 (1967) (same). That ambiguity does
not affect resolution of this case.
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