- 59 -
Section 482 determinations are to be sustained absent a
showing that the Commissioner’s discretion was abused. See
Paccar, Inc. v. Commissioner, 85 T.C. 754, 787 (1985), affd. 849
F.2d 393 (9th Cir. 1988). Consequently, taxpayers bear a heavier
than normal burden of proving that the Commissioner’s section 482
allocations are arbitrary, capricious, or unreasonable. See 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 abused is a question of fact. See American Terrazzo
Strip Co. 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 methodology employed. See Bausch & Lomb, Inc. v.
Commissioner, supra at 582; see also Eli Lilly & Co. v. United
States, 178 Ct. Cl. 666, 676, 372 F.2d 990, 997 (1967). The
applicable standard is arm’s-length dealing between taxpayers
unrelated either by ownership or control. See sec. 1.482-
1(b)(1), Income Tax Regs.14 Taxpayers bear the burden of showing
that the standard they used or that they proposed is arm’s
14 References to the income tax regulations under sec. 482
are to the 1968 regulations as amended and in effect for the tax
years under consideration.
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