Compaq Computer Corporation and Subsidiaries - Page 2




                                        - 2 -                                         

                              Penalty                                                 
          Taxable Year Ended     Deficiency     Sec. 6662(a)                          
          Nov. 30, 1991       $42,422,470          --                                 
          Nov. 30, 1992        33,533,968       $547,619                              
               The issue addressed in this opinion is whether income                  
          relating to printed circuit assemblies (PCA's) should be                    
          reallocated under section 482 to petitioner from its Singapore              
          subsidiary for its 1991 and 1992 fiscal years.  (A separate                 
          opinion will address issues, previously tried and briefed, of               
          whether petitioner's purchase and resale of American Depository             
          Receipts in 1992 lacked economic substance and whether petitioner           
          is liable for an accuracy-related penalty pursuant to section               
          6662(a).  Petitioner has also filed a Motion for Summary Judgment           
          on the issue of whether petitioner is entitled to foreign tax               
          credits for certain United Kingdom Advance Corporation Tax                  
          payments.)  Unless otherwise indicated, all section references              
          are to the Internal Revenue Code in effect for the years in                 
          issue.                                                                      
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated, and the stipulated             
          facts are incorporated in our findings by this reference.                   
               Compaq Computer Corporation is a Delaware corporation with             
          its principal place of business in Houston, Texas.  Compaq                  
          Computer Corporation and subsidiaries filed consolidated Federal            
          income tax returns for the taxable years ended November 30, 1991,           





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