- 9 -
1987, on which it claimed $61,137,114 additional basis in the UA
shares sold during that year. This addition to basis is not in
issue in these proceedings.8 On November 1, 1990, Tracinda sold
its remaining 35,046,037 shares of UA stock to an unrelated
purchaser for $753,313,496. Its cost basis in that stock was
$315,414,333 ($9 per share). Tracinda claimed an increase in
basis of $178,561,218 when reporting its taxable gain from the
sale on its income tax return for the taxable year ending January
31, 1991. That amount reflected a pro rata allocation to
Tracinda's basis in its UA shares of a $271,727,849 loss incurred
by MGM on its March 25, 1986, sale of UA. Only Tracinda's tax
year ending January 31, 1991, is at issue in this case. TBS and
the successor corporation to MGM have filed a civil action
against Tracinda. That action seeks, inter alia, damages and a
declaratory judgment that Tracinda pay any and all benefits
attributable to the UA Loss to TBS.9
The status of the various parties on March 25, 1986, prior
to the closing of TBS' acquisition of MGM and MGM's transfer of
UA, was as follows:
8It appears that respondent is barred from denying the
benefit of the basis adjustment in previous years because the
time allowed by the statutory period of limitations for the
assessment of tax on such adjustments has expired.
9In that suit TBS alleges and Tracinda denies that as part
of a post Merger settlement agreement, UA waived its right to
receive any part of the tax benefit resulting from the capital
loss realized on the sale of UA pursuant to clause 6.3(c) of the
Merger Agreement.
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