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The fourth category of deductions that compose petitioner's
net operating losses are its subsidiaries' losses. Petitioner's
deductions for Controlled Casting and Industrial Management are
supported only by petitioner's unaudited books. We have found
them unreliable, and therefore disregard the losses from these
subsidiaries in calculating petitioner's net operating losses.
Petitioner has, however, made a prima facie case with regard
to Sale By Owner's and Far Western's losses. Respondent argues
that these subsidiaries were not businesses and that their
expenses had no business purpose. We disagree.
Petitioner's witnesses testified that Far Western and Sale
By Owner were engaged in business as real estate brokers. This
testimony was corroborated by corporate minutes. Respondent
points to sworn affidavits from the McMahon Litigation that tell
a sordid story of the Byrne family members violating their
fiduciary duty and plundering the corporate coffers, but the
Judge in that case imposed sanctions against the plaintiffs and
stated: "There is no factual basis; there is no legal basis for
your continuing to proceed in this case."
Rather than engaging in corporate plundering, petitioner was
simply unlucky. Sale By Owner was beginning to show a profit
until McMahon filed his shareholder's derivative suit. The suit
consumed much of the time of petitioner's management and diverted
attention from the subsidiaries. And McMahon's son, Hugh,
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