- 3 -
Petitioner paid these deficiencies following receipt of its
notice of deficiency and then filed a petition with this Court
claiming an overpayment of income tax for each year. On December
6, 1993, petitioner filed a motion for leave to amend petition in
order to claim an increased overpayment of income tax for its
taxable year ended February 28, 1987, resulting from, among other
things, an alleged foreign tax credit carryback from its taxable
year ended February 28, 1989, in the amount of $952,015. On
January 28, 1994, this Court granted petitioner's motion in part
and allowed petitioner to claim an increased overpayment of
income tax resulting from the alleged foreign tax credit
carryback from its 1989 taxable year.
Allowance of this foreign tax credit carryback depends upon
our resolution of the issue we confront today. We must decide
what portion, if any, of the gain realized by petitioner on the
sale of Asian and Pacific operations of Mister Donut of America,
Inc. (Mister Donut), petitioner's wholly owned subsidiary, to
Duskin Co. (Duskin) on January 31, 1989, constitutes foreign
source income for purposes of computing petitioner's foreign tax
credit limitation pursuant to section 904(a).1
1At trial, the parties addressed an additional issue:
whether the loss realized by petitioner on the sale of the stock
of Paty S.A.-Produtos Alimenticios, Ltda. (the Paty stock loss
issue), constitutes a foreign source loss for purposes of
computing petitioner's foreign tax credit limitation under sec.
904(a). On July 8, 1996, the Internal Revenue Service issued
proposed regulations involving the allocation of losses realized
(continued...)
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