Mun Li Fong - Page 2

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               As a matter of law, petitioner contends that respondent’s              
          notice of deficiency in income tax to petitioner for 1986 in the            
          amount of $375,173 is barred by the 3-year period of limitation             
          under section 6501 and that the mitigation provisions of the Code           
          (specifically the circumstance of adjustment described in section           
          1312(7)) are not applicable.  Respondent objects to petitioner’s            
          motion for summary judgment on the law and also on the ground               
          that material facts remain in dispute.                                      
               The underlying substantive tax adjustment reflected in                 
          respondent’s notice of deficiency involves an increase of                   
          approximately $1.9 million in the amount of taxable gain                    
          petitioner realized in 1986 on liquidation and distribution of              
          the assets of Lee Yuen Enterprises (Hong Kong) Ltd. (LY                     
          Enterprises), a Hong Kong corporation authorized to do business             
          in California, in which corporation petitioner was the sole                 
          shareholder.                                                                
               In 1986, LY Enterprises was engaged in the business of                 
          owning and operating grocery stores in the United States and                
          investing in land development in California and in Hong Kong.               
               On December 31, 1986, pursuant to a plan of complete                   
          liquidation, LY Enterprises distributed its assets to                       










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