InterTAN, Inc. - Page 7

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               will be too low for the planning strategy to work.  If                 
               the deficit in the pool is too large, the carryback                    
               will eliminate all of the 1985 E&P.                                    
               With our current projections for the fiscal year 1993                  
               loss, the planning idea appears to be viable, but it                   
               relies on taking a position that we feel is unclear.                   
               InterTAN Canada has filed for a $17 million (Canadian)                 
               refund due to the carryback of the fiscal year 1992                    
               loss.  We have accrued the refund as a receivable and                  
               increased the 1992 E&P for the amount of the refund.                   
               Regulations �1.905-3T discusses adjustments to the E&P                 
               pool for refunds received.  However, Revenue Ruling 64-                
               146 states that for purposes of paying dividends, a                    
               refund due to the carryback of a net operating loss                    
               increases the E&P of the loss year.  Relying upon                      
               Revenue Ruling 64-146 and accruing the refund related                  
               to the 1992 loss will put the deficit in the post-1986                 
               E&P pool at a level that will make the planning strat-                 
               egy possible.                                                          
               On April 22, 1993, Mr. Saunders, who was at that time                  
          petitioner’s vice president and corporate controller, had a                 
          meeting (April 22, 1993 meeting) with Mr. Wolf, Mr. Thorpe, and             
          Mr. Bond.  Mr. Thorpe prepared a written summary of that meeting            
          dated April 22, 1993 (April 22, 1993 meeting summary).  The April           
          22, 1993 meeting summary stated in pertinent part under the                 
          heading “PLANNING IDEAS”:                                                   
               Avoid withholding tax in Canada by making dividend a                   
               repayment of paid-in capital.  We must first create                    
               some paid-in capital.  This can possibly be done by                    
               having ITI [petitioner] contribute a $30 million note                  
               * * * from Canada [ITC] to Canada.  Canada will then                   
               pay the dividend and ITI will make another loan to                     
               Canada.  The IRS shouldn’t really care because the U.S.                
               tax result is the same as if the planning had not been                 
               done.  Doug will look into the Canadian tax issues.  We                
               need to clear all this with MTC [Price Waterhouse’s                    
               Multi-State Consulting group].                                         
               On June 15, 1993, Mr. Bond prepared on behalf of Mr. Thorpe            

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