CMI International, Inc., a Michigan Corporation - Page 5




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          issued to CMI-Texas 3,207,177 shares (i.e., 100 percent) of newly           
          issued class B stock.                                                       
               On October 28, 1987, the market value of the debt interest             
          was US$1,125,000, and the number of pesos the Mexican Government            
          deposited into Industrias' account was computed based on the                
          following formula:  The face value of the debt (i.e.,                       
          US$2,300,000) multiplied by the market foreign exchange rate for            
          pesos (i.e., Mex$1639.94/US$), discounted by the authorized rate            
          (i.e., 15 percent).  On that day, the U.S.-dollar equivalent of             
          the pesos deposited in the account was US$1,955,000.  Industrias            
          was required to use the pesos in the account to purchase goods              
          and services provided by residents of Mexico.  Prior to                     
          disbursement of the pesos, the Mexican Government required                  
          Industrias to make formal written requests, thus ensuring that              
          the pesos would finance previously approved operations.  In                 
          addition, Industrias' class B stock was subject to restrictions             
          (i.e., CMI-Texas' rights to transfer, redeem, convert, and                  
          receive guaranteed dividends relating to, the stock were                    
          curtailed).                                                                 
               On its consolidated Federal income tax return for the year             
          ended May 31, 1988, petitioner did not report any gain relating             
          to the swap transaction.  Respondent determined that petitioner             
          recognized a taxable gain of $830,000 (i.e., the amount realized            







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