InterTAN, Inc. - Page 19

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               InterTAN Canada incurred losses in the 1990 through                    
               1992 tax years and carried them back to obtain refunds                 
               of Canadian income taxes.  The refunds obtained are as                 
             Tax Year for      Amount of                                              
              Which Taxes      Refund in    Exchange  Amount of Refund in             
            Originally Paid   Canadian $    Rate      U.S. $                          
                6/30/88       $  901,411     .8141        $  733,868                  
                6/30/89       16,621,759     .8320        13,829,147                  
                6/30/90      9,782,191       .8610        8,422,855                   

               The reductions to InterTAN Canada’s post-1986 pool of                  
               foreign taxes resulting from the distributions and the                 
               refunds could create a deficit in the pool.  Presently,                
               however, it is unclear whether InterTAN Canada’s post-                 
               1986 pool of taxes is, in fact, in a deficit position.                 
               The uncertainty arises from two factors.                               
               First, in the examination of InterTAN Inc’s 1986                       
               through 1988 tax returns, the IRS has proposed to                      
               recharacterize the June 30, 1989 preferred stock re-                   
               demption.  The taxpayer reflected the transaction as a                 
               dividend distribution; but the IRS has argued the                      
               instrument was debt and the distribution, a repayment.                 
               Should the IRS position be sustained, there would have                 
               been no deemed distribution of foreign taxes to reduce                 
               the post-1986 pool.  The examination is currently in                   
               the jurisdiction of the appellate division of the IRS.                 
               In addition, Revenue Canada is currently examining                     
               InterTAN Canada’s income tax returns and has proposed                  
               adjustments that could significantly increase the                      
               balance of InterTAN Canada’s pool of foreign taxes.                    
               The characterization of the 1989 distribution as a                     
               repayment of debt or significant assessments by Revenue                
               Canada could each independently affect InterTAN Can-                   
               ada’s pool of foreign tax such that the pool would not                 
               have a deficit balance.  [Emphasis added; footnotes                    
               On December 17, 2001, respondent accepted Form 870-AD, Offer           
          to Waive Restrictions on Assessment and Collection of Tax Defi-             
          ciency and to Accept Overassessment (Form 870-AD), which peti-              

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Last modified: May 25, 2011