- 20 -
On September 20, 1993, FCI sold to Burndy-US 595,200 shares
of Burndy-Japan stock for FF300,356,423. FCI required Burndy-US
to pay the difference of FF22,145,063 that resulted from the
decreasing cost of yen in French francs.
Burndy-US transferred to FCI all of its interest in FC-
Belgium and FC-Switzerland in 1993, and all of its interest in
FC-Spain and FC-Italy in 1994.
OPINION
A. Whether Burndy-Japan Was a Controlled Foreign Corporation in
1992
For the taxable year 1992, respondent reclassified foreign
tax credits related to Burndy-Japan from the general limitation
foreign tax credit basket under section 904(d)(1)(I) to a
separate non-controlled corporation foreign tax credit basket
under section 904(d)(1)(E). Respondent reclassified the Burndy-
Japan foreign tax credits solely on the ground that Burndy-Japan
was not a CFC within the meaning of section 957(a). The effect
of this reclassification was to reduce petitioners’ allowable
foreign tax credit from Burndy-Japan for 1992 (including
carryovers from 1988 and 1989) from $1,802,524 to $381,790.
1. Voting Power Test and Stock Value Test
Petitioners contend Burndy-Japan was a CFC in 1992.9 A
foreign corporation is a CFC if U.S. shareholders own more than
9 See note 11, below, relating to why petitioners sought
CFC status for Burndy-Japan.
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