Wally Findlay Galleries International, Inc. and Subsidiaries - Page 24

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          French subsidiary's prospects.  This had the same effect as an              
          assumption that the franc would not recover significantly against           
          the dollar in the foreseeable future.  The record does not                  
          disclose the reasons why they may have discounted this                      
          possibility nor that they considered it at all.  Petitioners have           
          made no attempt to defend this assumption.  In retrospect, of               
          course, we know it to be incorrect.  It may be that the peaking             
          and steep decline of the U.S. dollar, beginning in 1985, could              
          not reasonably have been anticipated on the basis of information            
          available to the officers of WFGI at the time they decided to               
          write off the intercompany debt.  The point is not that they                
          lacked perfect foresight, but that they seem to have neglected to           
          make a reasoned forecast.                                                   
               They were not unaware of the powerful effect of exchange               
          rate instability on the subsidiary's finances.  During the years            
          at issue, the losses that the French subsidiary sustained on                
          currency exchange transactions were duly noted by the                       
          subsidiary's auditors and reported in the consolidated financial            
          statements.  Promotional material prepared for investors blamed             
          the subsidiary's financial difficulties on “the french economic             
          situation and of [sic] losses on rates of exchange”.  Yet, the              
          officers' analysis of the subsidiary's situation for tax purposes           
          made no mention of the influence of exchange rates, a factor                
          deserving attention in the exercise of sound business judgment.             

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