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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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