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respondent relies on section 482, which gives respondent broad
discretion to allocate gross income, deductions, credits, or
allowances between two related corporations if the allocations
are necessary either to prevent evasion of taxes or to reflect
clearly the income. See Seagate Tech., Inc. & Consol. Subs. v.
Commissioner, 102 T.C. 149, 163 (1994). The applicable standard
for making these allocations with respect to fair market value is
arm’s-length dealing between taxpayers unrelated by ownership or
control. See sec. 1.482-1A(b)(1), Income Tax Regs. Accordingly,
we are called upon to decide the fair market value of Schlegel UK
and Schlegel GmbH on their respective valuation dates.
Respondent argues that, for purposes of section 311(b) and
section 482, the value of Schlegel UK on July 1, 1989, was
$49.8 million, that the value of Schlegel GmbH on November 30,
1989, was $8.4 million, exclusive of the silent partnership
interest, and that petitioner’s adjusted tax basis in Schlegel
GmbH was $4,074,993 on the valuation date. Respondent also
argues that this determination is not arbitrary, capricious, or
unreasonable pursuant to section 482.
Petitioner argues that, based upon the fair market value of
the net assets of Schlegel UK, including goodwill and going-
concern value, the fair market value of the stock of Schlegel UK
on the valuation date was no more than $21,846,000, that the
opinions of petitioner's experts independently establish the fair
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