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reallocation of income between petitioner and the Canelos growers
is appropriate if the compensation paid to petitioner relating to
its services for the related entities does not clearly reflect
the true taxable income of the members of the controlled group.
See Commissioner v. First Sec. Bank, N.A., 405 U.S. 394, 400
(1972); Hospital Corp. of Am. v. Commissioner, 81 T.C. 520, 594
(1983).
The regulations set forth an arm's-length standard to
determine whether reallocations between controlled entities are
needed. Thus, the regulations attempt to identify the "true
taxable income" of each entity on the basis of the taxable income
which would have resulted had the entities been uncontrolled
parties dealing at arm's length. See sec. 1.482-1(b)(1), Income
Tax Regs.
Respondent's determination as set forth in the notice of
deficiency is presumptively correct, and petitioner bears the
burden of disproving that determination. See Rule 142(a); Welch
v. Helvering, 290 U.S. 111 (1933). Moreover, respondent's
section 482 determination must be sustained absent a showing that
he has abused his discretion. See Paccar, Inc. & Subs. v.
Commissioner, 85 T.C. 754, 787 (1985), affd. 849 F.2d 393 (9th
Cir. 1988). To succeed, therefore, petitioner first must show
that respondent's section 482 allocations are arbitrary,
capricious, or unreasonable. See G.D. Searle & Co. v.
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