National Industrial Investors, Inc. - Page 25

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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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Last modified: May 25, 2011