slides - NABE

Burden of Proof – Transfer Pricing Cases (cont’d) Westreco, Inc. v. Comm’r, T.C. Memo 1992-561 At trial, the taxpayer called as a witness the IRS engineer who determined theinitial Section 482 allocations The taxpayer wanted to question the engineer about the methodology heused to determine the allocations, since the Notice of Deficiency did notexplain the methodology that was used The taxpayer argued that it was entitled to examine the manner in which theIRS exercised its discretion to ascertain whether the IRS abused itsdiscretion The IRS objected to the testimony, arguing that admitting the testimony wouldallow the court to “look behind” the Notice of Deficiency The Tax Court held that a “somewhat broader scope of inquiry is permitted wheretaxpayers have the heavy burden of demonstrating that the Commissioner hasabused his discretion” and allowed the testimony6