Inverworld, Inc., et al. - Page 160

                                                - 236 -                                                   
            determinable annual or periodical' United States source income                                
            that it may receive."  In his letter, Mr. Bricker does not                                    
            address the issue of whether LTD must file a U.S. income tax                                  
            return.                                                                                       
                  Similarly, Deloitte's workpapers do not address the issue of                            
            whether LTD must file a U.S. income tax return.  In its                                       
            workpapers for taxable years ended June 30, 1984, 1985, 1986,                                 
            1987, and 1989,36 Deloitte refers to section 8 of petitioners'                                
            permanent file to support its conclusion that petitioners have no                             
            U.S. tax liability.  That section of the permanent file contained                             
            Mr. Bricker's letter to Deloitte dated December 18, 1984, and a                               
            Deloitte internal memorandum dated August 28, 1985, from R.V.                                 
            Valdez to Floyde W. Burnside, Jr., and Glen I. Robinson.  R.V.                                
            Valdez writes that Deloitte's tax analysis of LTD in the 1984 and                             
            1985 financial statements is "appropriate" based on a discussion                              
            with Burnside and Robinson and Valdez's own analysis.  Deloitte's                             
            financial statements for petitioners conclude that LTD "is not                                
            subject to U.S. federal or state taxes on income as it has no                                 
            offices in the United States, no U.S. source income, and no                                   
            income effectively connected with the conduct of a U.S. trade or                              
            business."                                                                                    
                  We are not persuaded that petitioners relied upon Deloitte                              
            for advice as to whether to file a U.S. income tax return.  Mr.                               


            36                                                                                            
                  The workpapers for the audit of the taxable year ended June                             
            30, 1988, do not mention the tax obligations of LTD.                                          



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