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relationships are deductible pursuant to section 165;2 (2)
petitioners’ arm’s-length loan may, pursuant to section 482, be
recast as a new loan to reflect the interest rate at the time of
the subsequent assumption of the arm’s-length loan; and (3)
petitioners are allowed to defer recognizing foreign exchange
gain relating to 1996.
FINDINGS OF FACT
I. The Technicolor Acquisition
Carlton Communications Plc (Carlton), a United Kingdom (UK)
corporation, is the parent company of petitioner, Colorado
Acquisition Corp., and Technicolor Holdings, Ltd. (Holdings).3
Petitioner and Colorado Acquisition Corp. are U.S. corporations,
and Holdings is a U.K. corporation. Carlton International Corp.
(CIC) and Carlton International Holdings, Inc. (CIHI), are wholly
owned U.S. subsidiaries of petitioner.
On October 7, 1988 (the acquisition date), Colorado
Acquisition Corp. acquired from the Revlon Group, Inc., all the
stock of Technicolor Holdings, Inc. (Technicolor).4 The parties
2 Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
3 Holdings was formerly known as Colorado Holdings, Ltd.
4 As a result of several internal reorganizations of
Carlton’s domestic subsidiaries during the years in issue,
petitioner acquired the stock of Technicolor.
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