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length. See Seagate Tech., Inc., & Consol. Subs. v.
Commissioner, supra at 164.
If it is established that there was an abuse of the
Commissioner’s discretion and a taxpayer fails to show that
questioned transactions met an arm’s-length standard, then the
Court must decide the amount of an arm’s-length allocation. See
Sundstrand Corp. v. Commissioner, supra at 354.
IV. Was the Commissioner’s Determination Arbitrary, Capricious,
or Unreasonable?
A. In General
Petitioners argue that respondent has abandoned the grounds
for the determinations in the deficiency notice and, in effect,
conceded that the determinations are arbitrary, capricious, or
unreasonable. Petitioners also argue that respondent’s
determinations were in other respects arbitrary, capricious, and
unreasonable. Respondent disagrees and contends that no
abandonment of theory or methodology occurred and that the trial
position of respondent is compatible with the determinations in
the deficiency notice. We consider this portion of the
controversy from two different perspectives. First, we consider
the effect, if any, of respondent’s substitution of different
experts, for trial purposes, from those whose reports were used
for the bases of the determinations in the deficiency notice.
Then, we consider, generally, whether respondent’s determination
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