ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 93

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          consultations with the New York office of Arthur Andersen and               
          with Colgate, in February 1990, the audit engagement manager                
          briefed his colleague on the status of the problem:                         
                    Colgate does not want the cost to sell of US                      
                    $1,093,750 * * * in the November 30, 1989                         
                    income statement of ACM.  The reasons are                         
                    mainly tax driven, as inclusion might set the                     
                    IRS on top of the reasons why the partnership                     
                    was constructed in the first place and thus                       
                    the planned tax losses may be denied by the                       
                    IRS.  We, in cooperation with Steve Rossi of                      
                    our New York office, were requested to think                      
                    with Colgate in order to keep the cost to                         
                    sell out of the balance sheet.  [Emphasis                         
                    added.]                                                           
          One proposal under consideration was as follows:                            
                    Leave the LIBOR notes on the balance sheet as                     
                    they are and reason that one third of the                         
                    notes will be distributed to Colgate by 1990                      
                    and that the remainder of the notes is                            
                    eventually for the account of Colgate too.                        
                    This would require a side letter to the                           
                    partnership agreement stating that the LIBOR                      
                    notes are the one exception to the valuation                      
                    rules which now state valuation at market and                     
                    would state valuation at market and would                         
                    then state valuation at market increased by                       
                    the cost to sell the original Citicorp notes.                     
               The partnership followed this approach.  Pursuant to the               
          "Summary of Financial Accounting Policies" (Accounting Policies),           
          adopted 2 weeks later at the fourth partnership meeting, the                
          LIBOR Notes would be:                                                       
               carried on the books of the Partnership at cost, and                   
               adjusted * * * (I) for amortization of principal on a                  
               straight-line basis; and (ii) for movements in interest                
               rates upon the following events:  (a) distribution of                  
               any * * * [LIBOR] notes; (b) redemption of any Partner;                
               and liquidation of the Partnership.                                    





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