- 12 - to treat both the intercompany debt and the stock of the French subsidiary as wholly worthless as of the close of FY 1984. On their consolidated U.S. Corporation Income Tax Return for FY 1984, filed June 20, 1985, petitioners claimed a deduction in the amount of $1,663,237, consisting of the balance of the intercompany account ($1,061,425) and the basis in the French subsidiary's stock ($601,812) on September 30, 1984. The amount written off as a bad debt had been accrued as receipts by WFGI and included in consolidated income in prior years. The French subsidiary reported income from discharge of indebtedness on its French income tax return. This income was fully offset by prior net operating losses and created no tax liability. Notwithstanding their determination that the French subsidiary was hopelessly insolvent, its stock worthless and the intercompany account uncollectible, the officers of WFGI adhered to their decision to keep the subsidiary operating after FY 1984. For the most part, intercompany business continued as usual. The subsidiary continued to sell paintings on consignment from WFGI, and the intercompany account, once again, showed an increasing balance owed to the parent. The officers of WFGI considered ways to reduce the subsidiary's expenses and hoped that the new intercompany debt would be repaid out of higher sales. There is evidence that WFGI did not expect this relationship would continue indefinitely and intended to limit its support. InPage: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Next
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