Intergraph Corporation and Subsidiaries - Page 11

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            into Nihon Intergraph's checking account at Citibank Tokyo as                                 
            giving rise to a $1,923,103 foreign currency loss under section                               
            988 and to a $520,432 interest deduction under section 163(a).                                
                  The claimed $1,923,103 foreign currency loss was computed by                            
            subtracting from Intergraph's $6,484,169 cost of the �823,943,385                             
            that it purchased on December 23, 1987, and transferred into                                  
            Nihon Intergraph's checking account, the historical $4,561,066                                
            equivalent of the overdraft amount as reflected on Nihon                                      
            Intergraph's records.  The $520,432 interest deduction that                                   
            petitioner claimed was based on interest that had accrued and                                 
            that was charged to the overdraft amount over the course of the                               
            prior 2-1/2 years.                                                                            
                  On audit of petitioner's 1987 consolidated Federal income                               
            tax return, respondent determined that the overdraft amount                                   
            should be treated as a loan by Citibank Tokyo to Nihon                                        
            Intergraph, not as a loan to Intergraph, and thus that                                        
            Intergraph's transfer of the �823,943,385 into Nihon Intergraph's                             
            checking account on December 23, 1987, should be treated as a                                 
            capital contribution to Nihon Intergraph and that Nihon                                       
            Intergraph, not Intergraph, should be treated as paying off the                               
            overdraft amount.  Because the mere purchase of foreign currency                              
            to make a capital contribution to a corporation produces neither                              
            a foreign currency loss nor an interest expense, respondent                                   
            disallowed Intergraph's claimed $1,923,103 foreign currency loss                              
            under section 988 and Intergraph’s $520,432 claimed interest                                  




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Last modified: May 25, 2011