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amount of the funding was $290,000. In 1983 and 1984, DHL made
additional equity investments in and loans to NetExpress totaling
$3,783,000. In 1985 and 1986, DHL advanced loans to NetExpress
in the amounts of $3,107,128 and $6,000,000, respectively. In
1986, those loans were assigned from DHL to DHLI in exchange for
an interest-bearing promissory note in the amount of $9,107,128.
The transfers of NetExpress stock and loans to DHLI benefited DHL
by enabling it to raise cash.
When DHL Systems took over the technology functions of MRI
in 1989, it was owned 50 percent by DHL and 50 percent by DHLI.
As part of this transition, MRI’s technology assets were sold to
DHL Systems. The sale price was established by an independent
third-party appraisal and was borne by DHL and DHLI in proportion
to their ownership of DHL Systems; i.e., 50 percent by DHL and 50
percent by DHLI.
X. Respondent’s Determination
Before issuance of the notices of deficiency to petitioners,
no revenue agent’s report was prepared and no international
examiners’ reports were issued to petitioners. An economist’s
report was prepared in connection with the examination, but was
not provided to petitioners until a Court order compelled its
production in pretrial discovery. The pre-notice audit process
was protracted and did not operate on a free exchange of
information basis. Respondent issued third-party summonses
seeking information about petitioners, and petitioners would not
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