Compaq Computer Corporation and Subsidiaries - Page 30




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          U.S. from Compaq Asia that is approximately $232 million greater            
          than respondent's determination in the notice.  Due to the                  
          significant difference in these arm's-length prices and                     
          respondent's determination in the notice of deficiency, we                  
          conclude that respondent's allocations lead to an unreasonable              
          result and are thus arbitrary, capricious, and unreasonable.                
               Respondent argues that the shortcomings of the notice should           
          be excused because respondent assertedly considered all of the              
          evidence available to him at the time that he issued the notice.            
          Respondent argues an analogy to ASAT, Inc. v. Commissioner, 108             
          T.C. 147, 166-167 (1997).  Specifically, respondent contends that           
          petitioner used the cost-plus method in arriving at the return              
          position but at trial used the CUP method to establish the arm's-           
          length prices of Compaq U.S. purchases from Compaq Asia.                    
          Accordingly, respondent argues that the deficiency determination            
          should not be held arbitrary and capricious because, when the               
          notice position was formulated, it was reasonable.  Unlike the              
          situation in ASAT, Inc., which applied the sanction aspects of              
          section 6038A, respondent here was not denied any information               
          necessary to a reasonable determination.  Petitioner's change of            
          position is not the equivalent of unfair withholding of evidence.           
          Petitioner's conduct does not, in this case, enhance the                    
          credibility of the statutory notice.                                        







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