-33-
and harmonizes with the underlying * * * [statute’s]” purpose.
The Court, however, will not ignore the regulations’ explicit
terms in order to accommodate respondent’s litigating position.
While Treasury has the authority to modify its regulations to
resolve any conflict within the regulatory scheme, we must “apply
the provisions of respondent's regulations as we find them and
not as we think they might or ought to have been written.”
Larson v. Commissioner, 66 T.C. 159, 186 (1976). The arm’s-
length standard is included without exception, and the 1986
modification of section 482 did not eliminate the use of
comparable transactions in determining a controlled taxpayer’s
income. Section 1.482-1, Income Tax Regs., explicitly provides
that the arm’s-length standard applies to “all transactions”.
Cost-sharing determinations pursuant to section 1.482-7, Income
Tax Regs., are not exempted. Accordingly, if unrelated parties
would not share the spread or the grant date value, respondent’s
determinations are arbitrary and capricious.
D. Unrelated Parties Would Not Share the Spread or
Grant Date Value
Respondent contends that unrelated parties “implicitly”
share the spread12 and the grant date value,13 but both parties
12 As a result of respondent’s Oct. 21, 2003, amendment to
answer, the parties dispute who has the burden of proof with
respect to the spread theory. Our conclusion is based on the
preponderance of the evidence. Thus, the burden of proof is
(continued...)
Page: Previous 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 NextLast modified: May 25, 2011