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Other Taxes, Apr. 29, 1948, U.S.-Neth., art. VII, para. 1, 62
Stat. 1757, 1761. The withholding payment equaled 15 percent of
the declared dividend, $3,381,870. Accordingly, a net dividend
of $19,163,930 was deposited into petitioner's margin account at
Bear Stearns and wired to petitioner on October 2, 1992.
On its 1992 Federal income tax return, petitioner reported
the loss on the purchase and resale of Royal Dutch ADR's as a
short-term capital loss in the amount of $20,652,816, calculated
as follows:
Adjusted basis $888,535,869
Amount realized 867,883,053
Capital loss $ 20,652,816
Petitioner also reported dividend income in the amount of
$22,546,800 and claimed a foreign tax credit of $3,382,050 for
the income tax withheld and paid to the Netherlands Government
with respect to the dividend.
ULTIMATE FINDINGS OF FACT
Every aspect of petitioner's ADR transaction was
deliberately predetermined and designed by petitioner and
Twenty-First to yield a specific result and to eliminate all
economic risks and influences from outside market forces on the
purchases and sales in the ADR transaction.
Petitioner had no reasonable possibility of a profit from
the ADR transaction without the anticipated Federal income tax
consequences.
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