Wally Findlay Galleries International, Inc. and Subsidiaries - Page 2

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                    MEMORANDUM FINDINGS OF FACT AND OPINION                           
               LARO, Judge:  Petitioners sought redetermination of                    
          deficiencies in their Federal income tax for the taxable years              
          ended September 30, 1981 (FY 1981) and September 30, 1982 (FY               
          1982) in the amounts of $620,347 and $85,612, respectively.  The            
          deficiencies are attributable to the carryback of a net operating           
          loss arising from two deductions claimed on petitioners'                    
          consolidated return for FY 1984.  We must decide:  (1) Whether              
          petitioners are entitled to a deduction under section 166(a)(1)1            
          with respect to accounts payable by a foreign subsidiary that               
          were canceled in FY 1984; and (2) whether petitioners are                   
          entitled to a deduction under section 165(g) for loss of their              
          investment in the foreign subsidiary.  We hold that neither                 
          deduction was proper.                                                       
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated and are so found.               
          The stipulations of fact and attached exhibits are incorporated             
          herein by this reference.  Petitioners are an affiliated group of           
          corporations of which Wally Findlay Galleries International, Inc.           
          (WFGI), is the parent.  At the time the petition was filed WFGI's           
          principal office was located in Chicago, Illinois.  During FY               

               1 Unless otherwise indicated, section references are to the            
          Internal Revenue Code in effect for the taxable years at issue,             
          and all Rule references are to the Tax Court Rules of Practice              
          and Procedure.                                                              

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