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C. Eurotor
Eurotor's Federal income tax returns for the fiscal years
ended July 31, 1986, and July 31, 1987, reported income
effectively connected with a trade or business in the United
States. Eurotor's Federal income tax return for the fiscal year
ended July 31, 1988, was marked "Final Return" and contained the
following statement:
Eurator S.A. (98-0063013) is not effectively connected
with the conduct of a trade or business accordingly,
Eurator S.A. is not required to file a U.S. income tax
return of a foreign corporation (Form 1120F).
The return did not report any effectively connected income for
1988.
XIV. Certified Audit
Forsyth and Kim were involved in the C&L audits of the
Florida entities. They provided information to C&L in Florida.
Kim sent to C&L in Florida a related-party list in which he
indicated that Eurotor, Futureprom, Gatetown, Lince, Primavert,
RC, Estaspan, and Manver were not related parties. Kim also
crossed off the Spanish investors’ names as owners of their
respective Netherlands Antilles corporations.
A C&L employee prepared a workpaper entitled “Related
Parties”. The initial determination of related parties included
Manver, Gatetown, Futureprom, and Lince. The employee noted
that, after subsequent discussions with the client, it was
determined that Manver, Gatetown, Futureprom, and Lince were not
related. C&L was advised in the MDT audit for the fiscal year
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