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petitions were filed. On April 4, 2002, the parties stipulated
that no amount relating to ESOs would be included in petitioner’s
1996 cost-sharing pool.
B. Summary Judgment Motions
The Court filed petitioners’ motion for partial summary
judgment on February 4, 2002, and on March 6, 2002, filed
respondent’s cross-motion for partial summary judgment. On
October 28, 2003, we denied both parties’ motions, addressed
whether the spread is a cost pursuant to section 1.482-7(d)(1),
Income Tax Regs., and concluded:
respondent has not established that the spread is
indeed a cost or that the exercise date is the
appropriate time to determine and measure such cost.
* * * In addition, * * * petitioner has not
sufficiently established that it did not incur an
expense upon the employee’s exercise of the options at
issue.
The Court also addressed whether respondent’s lack of knowledge
of comparable transactions (i.e., where unrelated parties agree
to share the spread), or a finding that uncontrolled parties
would not share the spread, would have any effect on respondent’s
authority to make allocations pursuant to section 1.482-1(a)(2),
Income Tax Regs. We concluded:
Section 1.482-1(b)(2), Income Tax Regs., does not
require respondent to have actual knowledge of an
arm’s-length transaction as a prerequisite to
determining that an allocation should be made. See
Seagate Technology, Inc. v. Commissioner, T.C. Memo.
2000-388. If, however, it is established that
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