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3. Canada will redeem the preferred stock
for $20 million. It is imperative that
this step be accomplished before the end
of the fiscal year.
4. After the end of the fiscal year, ITI
will make a new loan to Canada.
Doug Saunders believes this will permit the Company to
avoid the Canadian withholding tax since the transfer
of funds to the U.S. should not constitute a dividend
for Canadian tax purposes. Whereas, the U.S. tax laws
rely more on substance, the Canadian tax laws rely
heavily on form.
The only advice in the June 28, 1993 file memorandum is attrib-
uted to Mr. Saunders and concerns the Canadian withholding tax
issue.
With respect to respondent’s argument under respondent’s
alternative position that petitioner did not have reasonable
cause for, or act in good faith with respect to, its treatment of
the disputed transaction in petitioner’s 1993 return, petitioner
further counters that it relied on oral advice (Mr. Wolf’s
alleged oral advice) given by Mr. Wolf, the Price Waterhouse
partner responsible for Price Waterhouse’s review and recommenda-
tion, to Mr. Saunders. In this connection, Mr. Saunders testi-
fied that Mr. Wolf orally advised him that the disputed transac-
tion would be respected if challenged by respondent. The only
evidence of Mr. Wolf’s alleged oral advice is Mr. Saunder’s
uncorroborated testimony, which was self-serving to petitioner.24
24At the time of the trial in this case, Mr. Saunders was
(continued...)
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