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allocation method will be a “reasonable allocation” method if
there is a logic to it and a sound basis and justification for
it.
III. The Reasonableness of Qwest’s Incremental Cost Allocation
Method
Respondent determined that Qwest’s incremental cost
allocation method is unreasonable. In support of this
determination, respondent argues that Qwest’s incremental cost
allocation method: (1) Does not meet the reasonableness standard
found in section 1.263A-1(f)(4), Income Tax Regs.; (2) is
inconsistent with the congressional objective of preventing
distortion in the organization of economic activity; and (3) is
inconsistent with the Supreme Court’s requirement of taxpayer
parity. Petitioners contend that Qwest’s incremental cost
allocation method is the most reasonable method because it
reflected the economic reality of the transactions.
Generally, a taxpayer bears the burden of proving the
Commissioner’s determinations incorrect. Rule 142(a)(1); Welch
v. Helvering, 290 U.S. 111, 115 (1933).24 Respondent determined
that Qwest’s cost allocation method was unreasonable, and
petitioners bear the burden of proving this determination
incorrect.
24 Under sec. 7491(a), the burden of proof may shift to the
Commissioner in certain situations. Petitioners do not argue
that the burden shifts to respondent.
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