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controlled entities in this case. Respondent and petitioner have
also resolved their differences regarding several other
reallocations determined by respondent. The only question
presented is whether the controlled entities must share the cost,
if any, of the domestic parent’s stock options given to the
parent’s employees who performed research and development
regarding particular intangibles.
Petitioner argues that where a bona fide cost-sharing
arrangement exists, section 1.482-2(d)(4), Income Tax Regs.,
requires respondent to have a factual predicate in order to make
any allocations. Petitioner also points out that respondent has
admitted that he does not have evidence or knowledge of an actual
arm’s-length transaction where stock option costs were shared.
Respondent, instead, relies on an affidavit containing an
expert’s opinion that options are part of the costs that would be
shared between arm’s-length parties. Where a bona fide cost-
sharing arrangement exists, petitioner contends that respondent
may not rely solely on an expert’s opinion as a basis for a stock
option cost-sharing allocation. Petitioner also argues that
respondent’s expert’s opinion is unreliable under the standard
set forth in Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579
(1993), and related cases. Additionally, petitioner contends
that even if the expert’s opinion was acceptable and/or
admissible, it is “opinion” and not “fact” and, therefore, could
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