Northwestern Indiana Telephone Company - Page 44

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                  formal annual meetings or minutes.                                                   
                  Are there any other planned uses of these funds?                                     

                  On or about December 12, 1990, two MW&E attorneys advised                            
            the revenue agent that they would be representing NITCO during                             
            the examination.  By letter dated December 17, 1990, one of the                            
            MW&E attorneys further advised the revenue agent, among other                              
            things:  (1) NITCO had not yet completed its review of the                                 
            planned uses for its accumulated earnings, and (2) NITCO was not                           
            willing to consent to an extension of the period of limitations                            
            on assessment and collection of its tax liability with respect to                          
            1987.  The MW&E attorney's December 17, 1990, letter, in                                   
            pertinent part, stated:                                                                    

                        You have also asked the company to identify the                                
                  potential uses of net liquid assets [and accumulated                                 
                  earnings].  We have recently been retained by the                                    
                  company for purposes of this representation and are in                               
                  the process of reviewing the corporate documentation                                 
                  and interviewing the officers.  When that process has                                
                  been completed, we will provide you with a full                                      
                  statement concerning the historic purposes for                                       
                  accumulating net liquid assets [and earnings].                                       
                  Although the process is far from complete, the list                                  
                  included in your [October 31, 1990] document request                                 
                  overlooks the largest and most obvious need for net                                  
                  liquid assets.  That is, the preservation of financial                               
                  strength to cope with the uncertainty present in the                                 
                  telecommunications industry during the period under                                  
                  audit.  Those uncertainties concern technical                                        
                  developments and regulatory governance and management                                
                  succession.                                                                          
                        As counsel to the company, we have advised them                                
                  not to extend the statute of limitation for the year                                 
                  1987 for purposes of audit.  While we generally                                      
                  recommend extensions of the statute for purposes of                                  
                  appellate review of a case, we do not recommend                                      



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