Norwest Corporation and Subsidiaries - Page 66

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          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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