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Fiscal Net Income or
Year Ended (Loss) Prior to Gain or (Loss)
Sept. 30 Interest Deduction1 on ECI
1989 ($5,088,223) ($5,922,973)
1990 1,201,048 (106,686)
1991 4,025,081 2,676,667
1Petitioner, on its first and second amended 1989 returns,
reported the same net loss, prior to the deduction for interest
expense, as had been reported on its original 1989 return.
In connection with the amended returns, petitioner filed a
statement entitled "Elections under Treasury Regulation Section
1.884-1(i) and 1.884-4(e)" seeking to reduce its liabilities and
interest expenses, as follows:
Fiscal Year Interest
Ended Liability Reduction Expense Reduction
9/30/89 $8,585,294 $355,292
9/30/90 10,669,677 716,924
9/30/91 8,447,873 843,312
Precipitated by respondent's audit examination, petitioner's
accountant, Kent K. Tsukamoto (Tsukamoto), a certified public
accountant, requested that the Seiyo office in Japan provide
copies of promissory notes for the 1988 through 1991 advances.
The employees of Seiyo initially did not understand why Tsukamoto
requested copies of promissory notes evidencing the advances as
loans. Ultimately, Tsukamoto received a Japanese language
document from Seiyo along with an English translation, entitled
"Confirmation/Acknowledgment". The document was dated June 2,
1993, and signed by the presidents of Seiyo and petitioner. It
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