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hands of the partnership. Upon liquidation of its investments on
December 30, 1992, Salina concluded that it realized a $337,343,455
short-term capital gain, representing the difference between
Salina’s purported substituted basis in its assets and their fair
market value.
Salina filed a Form 1065 for 1993 reporting income of
$6,177,300. FPL’s distributive share of Salina’s 1993 net income
was $6,053,754. Salina filed a Form 1065 for 1994 reporting a loss
of $12,163.
B. FPL’s 1992 Income Tax Return
On its original 1992 consolidated income tax return, FPL
reported a $337,343,455 capital gain attributable to its
distributive share of the capital gain that Salina purportedly
realized upon the liquidation of its investments on December 30,
1992. FPL offset a substantial portion of the aforementioned
capital gain by reporting a loss carryover attributable to its 1991
sale of CPG. After accounting for the loss carryover, FPL reported
and paid additional income tax of $5,904,046 (attributable to its
Salina investment) on its 1992 income tax return.
In May 1993, FPL filed an amended return for 1992 reporting an
increase in the amount of its CPG loss available for carryover from
1991 and claiming a refund of $5,904,046. FPL claimed that it was
entitled to a greater loss carryover from 1991 on the ground that
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