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proposed a formula for quantifying the value of any additional
management and administrative services necessitated by such
unusual events. Therefore, petitioners have failed to prove that
the allocations resulting from respondent's method do not satisfy
the independent transactions standard or reflect arm's-length
charges.
Petitioners' principal engagement at trial and on brief was
with Ms. Moore's allocation, apparently due to their belief that
respondent had abandoned his method in favor of Ms. Moore's.
Although the Moore allocation differs from the amounts allowed by
respondent in the notices of deficiency, respondent is explicit
in stating that he has not abandoned the notice and, we believe,
relies on the Moore allocation only to prove a reasonable
allocation on the contingency that petitioners succeed in showing
the respondent's allocation to be arbitrary, capricious, or
unreasonable. Having concluded that petitioners have failed to
carry their initial burden, we need not consider petitioners'
criticism of Ms. Moores's allocation.
3. Conclusion
Petitioners have failed to carry their burden of proving
that respondent abused his discretion; i.e., that the allocations
resulting from respondent’s method were arbitrary, capricious, or
unreasonable. The management cost fee allocation determined in
petitioners' notices of deficiency is therefore sustained.
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Last modified: May 25, 2011