- 32 -
Commissioner, 67 T.C. 224, 230 (1976); sec. 1.482-1(b)(1), Income
Tax Regs.
The Commissioner's authority to make allocations under section
482 is broad. Edwards v. Commissioner, supra at 230; PPG Indus.,
Inc. v. Commissioner, 55 T.C. 928, 990-991 (1970). The
Commissioner's section 482 determination must be sustained absent a
showing that he has abused his discretion. Paccar, Inc. v.
Commissioner, 85 T.C. 754, 787 (1985), affd. 849 F.2d 393 (9th Cir.
1988). Consequently, the taxpayer bears the heavier than normal
burden of proving that the Commissioner's section 482 allocations
are arbitrary, capricious, or unreasonable.7 Your Host, Inc. v.
Commissioner, 489 F.2d 957, 960 (2d Cir. 1973), affg. 58 T.C. 10, 23
(1972); Seagate Tech., Inc. & Consol. Subs. v. Commissioner, supra
at 164; G.D. Searle & Co. v. Commissioner, 88 T.C. 252, 359 (1987).
Whether the Commissioner's discretion has been exceeded is a
question of fact. American Terrazzo Strip Co., Inc. v.
Commissioner, 56 T.C. 961, 971 (1971). In reviewing the
reasonableness of the Commissioner's allocation under section 482,
we focus on the reasonableness of the result, not the details of the
7 In the instant case, petitioners thus bear the burden of
proving that respondent's downward adjustment of the royalty
rate, pursuant to sec. 482, to 5 percent in the notices of
deficiency is arbitrary, capricious, or unreasonable. Because
respondent amended his answers to assert that the appropriate
royalty rate, pursuant to sec. 482, should be 0 percent, the
burden of proving that the royalty rate should be adjusted below
5 percent rests with respondent. Rule 142(a); see also supra
note 2.
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