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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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