- 25 -
CFC and the Cordeses (collectively, with respect to this
issue, petitioners) contend that, under section 482,25 18 percent
is an arm’s-length rate of interest for loans such as the three
loans before us26 and that income and deductions from interest
are properly allocable in a manner consistent with an 18-percent
rate of interest.27
25Neither CFC nor the Cordeses (collectively, with respect
to this issue, petitioners) dispute the applicability of sec.
482; they only dispute the way in which respondent applies sec.
482.
26Throughout these proceedings, petitioners have treated the
three loans as made on identical terms with identical interest
rates.
27Petitioners also argued on brief that CFC’s and the
Cordeses’ consistent reporting of the interest at issue, as
between themselves, justified the amounts of interest expense and
income claimed. In light of our holding, and because petitioners
offered no authority for their supposition, we decline to
consider that argument.
Furthermore, petitioners appear to contend for the first
time in their reply brief that respondent would abuse his
discretion under sec. 482 to reallocate income and deductions in
a manner inconsistent with an interest rate of 18 percent.
Ordinarily, we do not consider issues raised for the first time
in a party’s reply brief. Cordes v. Commissioner, T.C. Memo.
1994-377, and cases cited therein. We note, in passing, that the
Commissioner is afforded broad discretion under sec. 482, and his
reallocations will be upheld absent a taxpayer’s showing that
they are arbitrary, capricious, or unreasonable. Dolese v.
Commissioner, 811 F.2d 543, 546 (10th Cir. 1987), affg. 82 T.C.
830 (1984); Ach v. Commissioner, 42 T.C. 114, 125-126 (1964),
affd. 358 F.2d 342 (6th Cir. 1966). Moreover, petitioners’
income and deductions from interest were not reported using an
18-percent rate.
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