-66-
adjustment was necessary for the risk associated with the official
rate premium.
We believe that the 12-year waiting period was not a
restriction on sale but rather a restriction on repatriation of
dollars out of Brazil. Even if petitioner could not take the sale
proceeds out of Brazil in dollars, it could sell MRC at any time
to a buyer in Brazil paying cruzados. Petitioner could also sell
MOIL for dollars outside Brazil. Petitioner's PCC equity
investment was not equivalent to restricted stock.
By focusing on Dr. Froot's opinion that the fair market
value of the cruzados should be determined by reference to the
parallel market exchange rate, petitioner attempts to escape the
tax consequences of its bargain.39 While we agree with Dr. Froot
38(...continued)
conversion because it was "forced" to use the official exchange
rate and would receive none of this "penalty" back if the
official and parallel rates converged prior to the end of the 12-
year period. Dr. Froot believed that the spread was likely to
narrow.
In April 1987, Dr. Cline would have predicted that the
spread between the official exchange and parallel rates was
likely to continue for a considerable period of time because
Brazil had imbedded indexation as a result of chronic inflation.
Also, Mr. Narayana believed that a spread would persist for a
long time in the absence of drastic action by the Brazilian
Government. In fact, a spread still existed in 1995.
39 See G.M. Trading Corp. v. Commissioner, 106 T.C. at
263-264 (where the taxpayer was unsuccessful in attempting to
disavow the price that the Mexican Government had agreed to pay
and the taxpayer had agreed to accept in exchange for the debt).
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