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tioner had signed and submitted to respondent with respect to
petitioner’s taxable years ended June 30, 1989, 1990, 1991, 1992,
1993, and 1994. With respect to petitioner’s taxable year ended
June 30, 1993, Form 870-AD reflected petitioner’s agreement to an
overassessment of $712,316. That agreement was explained in Form
3610, Audit Statement, and Form 5278, Statement--Income Tax
Change, which were prepared on November 27, 2001 (collectively,
respondent’s November 27, 2001 audit report). In respondent’s
November 27, 2001 audit report, respondent determined that:
(1) Petitioner’s income attributable to the claimed dividend from
ITC should be decreased by $38,236,696, representing a decrease
of dividends received of $20,000,000 and a decrease in foreign
dividend gross-up under section 78 of $18,236,696; (2) the
foreign tax credits that petitioner claimed as a result of the
claimed dividend income from ITC were disallowed; and (3) peti-
tioner had a loss of $8,906,122 attributable to a net operating
loss carried back from petitioner’s taxable year ended June 30,
1995.
On February 7, 2002, respondent issued a notice of defi-
ciency (notice) to petitioner. In that notice, respondent
determined that petitioner is liable for the year at issue for
the accuracy-related penalty under section 6662(a). That is
because respondent determined that there was an understatement of
$5,004,095 in petitioner’s 1993 return that was attributable to
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