ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 90

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               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                          




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