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In 1996, following receipt of the Form 1139 from LGA,
respondent began an examination of LGA’s fiscal years 1993 and
1994 Federal income tax returns. Respondent denied LGA’s refund
claims for the fiscal years ended February 28, 1993 and 1994 and
determined deficiencies in Federal income tax for those years in
the amounts of $217,280 and $126,017, respectively. The denial
of the claimed refunds and the determination of deficiencies for
the fiscal years 1993 and 1994 were premised, in part, on
respondent’s determination that LGA and Sunrise were separate
legal entities during the fiscal year ended February 28, 1994.
During the pendency of its Chapter 11 proceeding, LGA argued
that Sunrise should be disregarded, as a “sham” entity. LGA
contended that Sunrise should be disregarded for Federal income
tax purposes and that LGA was entitled to substantial Federal
income tax refunds for the fiscal years ended February 28, 1993
and 1994.
After LGA and Sunrise filed their petitions in bankruptcy on
February 7, 1996, an order was entered by the Bankruptcy Court
setting May 31, 1996, as the deadline for filing proofs of claim.
On March 27, 1996, the IRS filed a proof of claim for unpaid
taxes in the amount of $73,500. The content of the claim was as
follows:
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