InterTAN, Inc. - Page 38

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          should be spread out “over some length of time”.23  Mr. Bond’s              
          draft June 1993 file memorandum gave the foregoing advice to                
          petitioner for the following reasons set forth in that memoran-             
          dum:                                                                        
               The economic situations of both ITI [petitioner] and                   
               Canada [ITC] are the same after transaction [sic] as                   
               they were before the transaction.  Canada has an obli-                 
               gation due to ITI both before and after the transac-                   
               tion.  In addition, the cash ends up back in Canada                    
               after ITI makes the new loan.  Therefore, the IRS may                  
               attempt to take a position stating that the entire                     
               transaction is simply a sham undertaken to generate                    
               deemed paid foreign tax credits for ITI.  To the extent                
               the amounts in each step of the transaction are compa-                 
               rable and the length of time lapsing between each step                 
               is short, the IRS will be able to build a better case                  
               for this position.                                                     
               Petitioner did not follow the advice in Mr. Bond’s draft               
          June 1993 file memorandum.  The dollar amount in each step of the           
          disputed transaction was the same, i.e., $20 million.  Moreover,            
          the first three steps of the disputed transaction (i.e., ITC’s              
          purportedly borrowing $20 million from Royal Bank to make a                 
          payment to petitioner on an outstanding loan from petitioner to             
          ITC, the purported issuance of ITC’s preferred stock to peti-               
          tioner in exchange for that $20 million, and ITC’s purported                
          redemption of that preferred stock for that $20 million) occurred           

               23It is significant that Mr. Bond’s draft June 1993 file               
          memorandum did not even outline the steps of the disputed trans-            
          action 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.                                                            





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