- 70 -
determination was based upon one method and an amendment to
answer contained another method that resulted in an increased
deficiency from that determined in the deficiency notice. See
Eli Lilly & Co. v. Commissioner, 84 T.C. 996, 1132 (1985), affd.
in part, revd. in part on other issues and remanded 856 F.2d 855
(7th Cir. 1988). The Commissioner’s trial expert in that case
did not opine about either of these methods and, instead, relied
on two other methods to allocate income. The taxpayer in Eli
Lilly & Co., similarly to petitioners here, argued that the
difference between the trial position and the deficiency notice
determinations caused the Commissioner’s determinations to be
arbitrary, capricious, and unreasonable. As a result, the
taxpayer contended that the Commissioner’s determination should
not be entitled to the presumption of correctness. The Court
disagreed, holding that the presumption of correctness afforded
to the Commissioner’s section 482 determinations is not to be
lost solely because of the use of differing methodologies. The
Court reasoned that to hold otherwise would preclude the
Commissioner from using outside experts or making alternative
determinations. In some circumstances, however, an abandonment
of methodology may support a finding in part or whole, that the
Commissioner’s determination was unreasonable, arbitrary, or
capricious. See, e.g., National Semiconductor Corp. v.
Commissioner, T.C. Memo. 1994-195.
Page: Previous 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 NextLast modified: May 25, 2011