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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
follows:
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
omitted.]
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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