Northwestern Indiana Telephone Company - Page 62

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            notices of deficiency in the instant cases, the limited                                    
            partnership's formation was not an arm's-length transaction                                
            between the partners, and the limited partnership interest NITCO                           
            obtained was not commensurate with its relative capital                                    
            contribution to the limited partnership.                                                   
                  With respect to the retirement of NITCO's long-term debt,                            
            petitioners have established that in 1988 and 1989, NITCO made                             
            respective payments of $575,505 and $170,700 to retire the debt.                           
            Although the debt's outstanding principal amount was $669,530,                             
            NITCO was required to pay some additional interest and a                                   
            prepayment penalty to retire the debt.                                                     
                  With respect to NITCO's installation of fiber optic cable to                         
            connect its exchanges, Mr. Mussman testified that NITCO spent                              
            about $1 million to install the fiber optic cable during 1987                              
            through 1989.  On cross-examination, however, he admitted that                             
            his $1 million figure included NITCO's overhead costs, as NITCO's                          
            employees performed the installation work.  Further, most of the                           
            cable to connect the exchanges was installed in 1987 and 1988.                             
            By 1989, NITCO was in the final stages of the connection work,                             
            and only a relatively short segment of cable remained to be                                
            installed once NITCO resolved an easement problem.  We think Mr.                           
            Mussman's $1 million figure is high.  Petitioners offered no                               
            specific additional evidence concerning the actual amounts NITCO                           
            spent to install the fiber optic cable during 1987 through 1989.                           
            Doing the best we can on the record presented, and bearing                                 




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