Sealy Corporation and Subsidiaries, f.k.a. The Ohio Mattress Company and Subsidiaries, et al. - Page 8

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                The following losses are in dispute:                                         
                     Acctg fees re:        Acctg fees re:    Prof.                           
          Tax        audited financial     employee benefits   fees                          
          year       statements and SEC          financial        Re: IRS                    
          ending regis. statements       statements       audit                              
          11/30/89     $631,109                  $34,450               --                    
          11/30/90         552,000               24,500                --                    
          11/30/91         337,700               24,500          $140,186.50                 
          11/30/92         287,500               17,200          427,787.50                  

                Petitioners reported that they had losses on their 1989,                     
          1990, 1991, and 1992 returns, part of which petitioners carried                    
          back as specified liability losses under section 172(b)(1)(C) to                   
          the year ending November 30, 1985.  Petitioners reported taxable                   
          income of more than $6,484,484 on the returns they originally                      
          filed for 1985.  Petitioners' specified liability losses included                  
          payments to their public auditors and to the SEC in connection                     
          with petitioners’ compliance with the 1934 Act and ERISA and                       
          payments for legal and accounting services in connection with the                  
          IRS audits.                                                                        
                The parties agree that the SEC and ERISA professional fees                   
          and the IRS examination expenses described above are deductible                    
          under chapter 1.                                                                   
                                         Discussion                                          
                The parties have stipulated the amount of petitioners’ net                   
          operating losses.  The only issue for us to decide is whether                      
          petitioners may carry those losses back 10 years or 3 years.                       







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