- 48 -
Kannex paid neither U.S. nor foreign tax on its 82.63
percent distributive share of the partnership capital gain. On
its consolidated Federal income tax return for 1989, Colgate
reported a net capital loss attributable to Southampton in the
amount of $13,521,432, representing the difference between
Southampton's distributive share of the partnership capital gain
($18,908,407) and the capital loss that Southampton recognized on
the sale of the BFCE Notes to Sparekassen ($32,429,839).11
During the years at issue, Colgate retained Arthur Andersen
& Co., as its accountants. In connection with the audit of
Colgate's consolidated financial statement for 1989, the audit
engagement team and Arthur Andersen's tax team discussed with
Colgate's treasury, financial, and tax department personnel how
to report the partnership and its activities for financial
accounting purposes. Representatives of Merrill were also
present. An outline was presented of the planned sequence of
11 Colgate computed the loss as follows:
Cash proceeds $9,406,180
Imputed interest on contingent
payments (48,693)
Amount realized 9,357,487
Citicorp Note basis plus
accrued interest 50,144,161
Basis allocable to LIBOR
Notes (5/6) 41,786,801
Section 1274 interest accrued
by ACM 525
Adjusted basis allocable to
LIBOR Notes 41,787,326
Capital loss 32,429,839
Page: Previous 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 NextLast modified: May 25, 2011