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position deserves our deference, and we do not interfere unless
the Commissioner’s determination is arbitrary, capricious,
clearly unlawful, or without sound basis in fact or law. See,
e.g., Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 532-533,
550 (1979); Jonson v. Commissioner, 118 T.C. at 125; see also
Patton v. Commissioner, 116 T.C. 206, 210 (2001); Buzzetta
Constr. Corp. v. Commissioner, 92 T.C. 641, 648 (1989); Oakton
Distribs., Inc. v. Commissioner, 73 T.C. 182, 188 (1979).
Our longstanding practice has been to hold trials de novo in
many situations where an abuse of discretion standard applies.
In those cases, our practice has not been to limit taxpayers to
evidence contained in the administrative record or arguments made
by the taxpayer at the administrative level. Examples of actions
in which we conduct a trial de novo are whether it was an abuse
of discretion for the Commissioner to (1) determine that a
taxpayer’s method of accounting did not clearly reflect income
under section 446, e.g., Thor Power Tool Co. v. Commissioner,
supra at 533 (Supreme Court used Tax Court findings in making its
determination); Mulholland v. United States, 25 Cl. Ct. 748
(1992);8 (2) reallocate income or deductions under section 482,
8 The U.S. Court of Federal Claims conducts a trial de novo
in tax refund cases in which the Commissioner has exercised
discretion and determined that the taxpayer’s method of
accounting does not clearly reflect income under sec. 446(b).
Mulholland v. United States, 25 Cl. Ct. 748 (1992). In
Mullholland, the Claims Court rejected the Government’s
(continued...)
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