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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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