Robert A. Stanford and Susan Stanford - Page 10

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               On audit, respondent disallowed petitioners' use for 1990 of           
          the $1,406,365 total deficits in earnings and profits of Guardian           
          Services and of Stanford Financial to reduce the $2,789,722                 
          subpart F income of Guardian Bank.                                          
               Respondent also reduced the $615,890 net operating loss that           
          petitioners carried forward from 1989 based on the disallowance             
          of petitioners' use of the $385,386 total 1989 deficits in                  
          earnings and profits of Guardian Services and Stanford Financial            
          to reduce the 1989 $580,483 subpart F income of Guardian Bank.              
               For 1990, respondent determined against petitioners a late             
          filing addition to tax under section 6651(a)(1) and an accuracy-            
          related penalty under section 6662(a).                                      

                                       OPINION                                        
               Under subpart F of the Code, certain income (subpart F                 
          income) of U.S. controlled foreign corporations (CFC's) is to be            
          included in income of U.S. shareholders of the CFC's regardless             
          of whether the CFC's income is distributed currently to the U.S.            
          shareholders.  Sec. 951(a).                                                 
               Under section 952(d), as applicable through 1986, U.S.                 
          shareholders with subpart F income were permitted to reduce                 
          subpart F income of profitable CFC's by deficits in earnings and            
          profits of unprofitable CFC's that were part of a chain of                  
          controlled foreign corporations.  This rule was referred to as              
          the "chain deficit rule".  As applicable through 1986, deficits             





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