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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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