-22-
leave to file a second amendment to the answer in docket No.
4142-01 and an amendment to the amended answer in docket No. 702-
03. In this motion, respondent included the number of options at
issue and the amounts of the revised deficiencies. Pursuant to
his grant date theory, the amounts of the revised deficiencies
relating to 1997, 1998, and 1999 are $25,121,951, $27,854,698,
and $24,784,465, respectively. On June 3, 2004, the Court
granted respondent’s motion but concluded that respondent’s
amendment raised a new matter because “the grant date theory
requires different evidence (i.e., includes additional options
and utilizes a different method of valuation)” and alters the
original deficiency. On July 14, 2004, the trial commenced.
Discussion
I. Applicable Statute and Regulations
A. Purpose and Scope of Section 482
Section 482 was enacted to prevent tax evasion and ensure
that taxpayers clearly reflect income relating to transactions
between controlled entities. It accomplishes this purpose by
authorizing respondent:
[to] distribute, apportion, or allocate gross income,
deductions, credits, or allowances between or among
* * * [controlled entities], if he determines that such
distribution, apportionment, or allocation is necessary
* * * to prevent evasion of taxes or clearly to reflect
the income of * * * [such entities].
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