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that petitioner made available to Price Waterhouse at the time
the disputed transaction was being planned. The June 15, 1993
memorandum from Mr. Bond to Mr. Wettlaufer, petitioner’s and
ITC’s senior vice president for finance and administration,
advised petitioner that “varying the dollar amounts involved in
the various steps by a significant amount (say $1 million) will
help reduce exposure” to the IRS’s “reclassifying the transaction
as something other than a dividend and disallowing * * * [ITC’s]
deemed paid foreign tax credits associated with the dividend.”22
Petitioner did not follow that advice; the dollar amount in each
step of the disputed transaction was the same, i.e., $20 million.
Mr. Saunders testified that he did not recall why petitioner
failed to vary the amounts involved in the various steps of the
disputed transaction, as Price Waterhouse advised it to do in the
June 15, 1993 memorandum.
Mr. Bond’s draft June 1993 file memorandum also advised
petitioner that the dollar amount in each step of the disputed
transaction should be varied. In addition, that memorandum
advised petitioner that the steps of the disputed transaction
22It is significant that the June 15, 1993 memorandum from
Mr. Bond to Mr. Wettlaufer did not even outline the steps of the
disputed transaction as they occurred. Instead, that memorandum
referred to: (1) ITC’s making a payment to petitioner on an
outstanding loan; (2) a cash contribution to ITC by petitioner;
(3) the declaration of a dividend by ITC to petitioner; and
(4) petitioner’s making a new loan to ITC in the first quarter of
the next fiscal year.
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