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C. Petitioner's Examination of Tri-Power's NOL's and
Financial Condition
Petitioner first became aware of Tri-Power's NOL's when it
received the sales package from Ms. Dichter. Sometime during
early October 1986, petitioner engaged Arthur Andersen to review
Tri-Power's tax returns and to verify Tri-Power's NOL's.
In a letter dated October 22, 1986, Arthur Andersen
communicated to petitioner the results of its investigation up to
that point. In that letter, Arthur Andersen indicated that it
had reviewed (1) the tax returns and related workpapers of Tri-
Power and its predecessors for the years 1976 through 1985,
representing $65.9 million of the total NOL's of $84 million, (2)
tax returns representing 94 percent of the total loss
carryforward, and (3) the various acquisitions and
reorganizations that resulted in the formation of Tri-Power.
Arthur Andersen opined that the Federal income tax returns it
reviewed were prepared in accordance with Federal tax law. In
reviewing the tax returns of Tri-Power and its predecessors,
Arthur Andersen identified several issues that it believed needed
to be addressed before the acquisition became final. Arthur
Andersen, in the October 22, 1986, letter, recommended that
petitioner obtain, before closing on the acquisition of Tri-
Power, tax opinions concerning (1) the tax consequences of the
various acquisitions and reorganizations of Tri-Power's
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