-4-
H. Liability Issues .......................... 16
I. Tax and Accounting Matters ................ 17
J. Petitioner's Returns and Petitions ........ 18
K. Notice of Deficiency ...................... 19
Discussion.................................... 19
L. Capital Expenditures vs. Current
Deductions ................................ 19
M. General Plan of Rehabilitation Doctrine ... 21
N. The Parties' Arguments .................... 23
O. Analysis .................................. 27
Issue II. Brazilian Debt-Equity Conversion ............. 29
A. The Brazilian Debt Crisis ................. 31
1. Deposit Facility Agreements and
Blocked Deposits ....................... 31
2. The Cruzado Plan ....................... 33
3. Moratorium on Interest ................. 34
B. Petitioner's Blocked Deposits ............. 34
C. Papel e Celulose Catarinense, S.A. ........ 36
1. PCC's Expansion Plans .................. 38
2. Petitioner's Internal Analysis of a PCC
Investment ............................. 39
3. Petitioner's Conclusions About the PCC
Investment ............................. 40
D. Steps Leading Up to the Conversion ........ 41
E. The Conversion Transaction ................ 42
F. Petitioner's Tax and Accounting Treatment
of the Conversion ...................... 45
G. Petitioner's Return and Petition .......... 46
H. Notice of Deficiency ...................... 47
I. Subsequent Events ......................... 47
Discussion ................................... 47
J. Respondent's Arguments .................... 47
K. Petitioner's Arguments .................... 50
L. Law and Analysis .......................... 52
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