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BTR Dunlop Holdings, Inc. (BTR Dunlop Holdings), a Delaware
corporation, was formed on December 14, 1989, as a wholly owned
subsidiary of BTR International. On December 30, 1989, BTR
Dunlop Holdings acquired all of the stock of BTR Dunlop from BTR
International and became the parent corporation of the BTR
affiliated group.
On its 1989 Federal income tax return, petitioner reported
the adjusted basis of Schlegel GmbH to be $9,400,000, including
the silent partnership agreement. The Schlegel Corporation
general ledger account for the period ended December 31, 1988,
shows that Schlegel Corporation had a basis in Schlegel GmbH of
$4,074,993. This amount did not include the $675,227 in
subpart F interest income that Schlegel Corporation recognized
from Schlegel GmbH in 1988.
Audit
On audit, respondent’s revenue agent, Zygmunt Rachwal
(Rachwal), reviewed the reported fair market values of Schlegel
UK and Schlegel GmbH using the management-prepared sales
projections for Schlegel UK from the VRC report and financial
statements of Schlegel UK and Schlegel GmbH. Rachwal concluded
that Schlegel UK should be valued at $49,069,000 and that
Schlegel GmbH had a value of $13,246,000, including the silent
partnership of $5,623,000.
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