- 57 -
We conclude that Burndy-US transferred to FCI excess value
of $15,807,495 ($14,677,250 for FC-Belgium and $1,130,245 for FC-
Switzerland) in 1993 by transferring the stock of FC-Belgium and
FC-Switzerland to FCI.25
b. Exchange Rates
Respondent contends that Burndy-US transferred $2,140,546 to
FCI by using an inflated exchange rate to value French francs in
1993 when Burndy-US transferred its European subsidiaries and
cash to FCI in exchange for a 40-percent interest in Burndy-
Japan. Respondent bases this contention on exchange rates for
December 30, 1993, published by the Federal Reserve Bank of New
York. Petitioners contend that the exchange rates that Burndy-US
and FCI used were the result of arm’s-length negotiations, and
that the published rates are entitled to no weight. We disagree
in part with both parties.
FCI agreed to sell 595,200 shares of Burndy-Japan stock to
Burndy-US for FF300,240,285 (or $53,050,302, the amount Burndy-US
reported on its income tax return). The exchange rate published
by the Federal Reserve Bank of New York was FF5.8975 to $1 for
25 Burndy-US reported on its 1993 return that it paid
$17,690,552 in cash as a part of that transaction. Petitioners
contend that Burndy-US paid only $17,289,162. We need not decide
which amount is correct because respondent did not determine that
a constructive dividend resulted from the $17,690,552 cash
component. Similarly, we need not decide petitioners’ contention
that we must use the fair market value of francs, not Burndy-US’s
tax basis in those francs, to decide which amount is correct.
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