-49-
Norwest's International Department was responsible for
monitoring the value of petitioner's PCC investment on a quarterly
basis. Petitioner periodically reviewed all of its lesser
developed country debt. On July 3, 1987, Mr. Williams wrote a
memorandum, on behalf of International Management, reassessing the
value of petitioner's PCC equity interest. Based on a June 12,
1987, Proposed Practice Bulletin issued by the American Institute
of Certified Public Accountants and its own analysis that the true
fair market value of the debt surrendered would be 85 percent of
par, petitioner decided to write down its PCC investment to
approximately $10.7 million, based on a 15-percent discount.
At the end of 1987, petitioner again reduced the value of the
PCC investment to $8 million for financial purposes. This value
was based on the secondary market value of the $12,577,136 debt and
on petitioner's Tax Department's analysis of the tax implications
resulting from the debt-equity transaction.
G. Petitioner's Return and Petition
On its 1987 Federal income tax return, petitioner claimed a
$4,577,136 loss (the difference between its $12,577,136 of blocked
deposits and $8 million, the secondary market price for the
$12,577,136 of Brazilian debt as well as petitioner's final
valuation for book purposes of the PCC stock received in the debt-
equity conversion). Petitioner asserted in its petition: "Since
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