Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 7

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          2.  Worthlessness of Debts .....................  240                       
          B.  Bona Fide Indebtedness Issue ...................  244                   
          VI.     Corona Transaction .................................  254           
          VII.    Sales of Receivables to TroMetro ...................  257           
          VIII.   Summary of Conclusions So Far ......................  259           
          IX.     At-Risk and Passive Activity Loss Rules ............  261           
          X.      SMP’s Basis in SMHC Stock ..........................  262           
          XI.     Accuracy-Related Penalties .........................  264           
          A.  Burden of Production ...........................  265                   
          B.  Gross Valuation Misstatements ..................  267                   
          C.  20-Percent Accuracy-Related Penalties ..........  275                   
          1.  Negligence .................................  275                       
          2.  Substantial Understatement of Income Tax ...  279                       
          D.  Reasonable Cause ...............................  284                   
          1.  August 1996 Memorandum From                                             
          Shearman & Sterling ........................  289                           
          2.  Ernst & Young Memorandum ...................  292                       
          3.  May 12, 1997, Shearman & Sterling                                       
          Memorandum .................................  293                           
          4.  October 10, 1997, Shearman & Sterling                                   
          Memorandum .................................  298                           
          5.  February 26, 1998, Shearman & Sterling                                  
          Memorandum .................................  301                           
          6.  Grant Thornton Memorandum ..................  303                       
          7.  Opinion From Chamberlain Hrdlicka ..........  307                       
          8.  Conclusion .................................  311                       
          XII.    Evidentiary Matters ................................  312           
          A.  Daubert Issues .................................  312                   
          1.  Mr. Crawford ...............................  313                       
          2.  Ms. Nemschoff ..............................  316                       
          a.  Ms. Nemschoff’s Expert Opinion .........  317                           
          b.  Petitioner’s Arguments .................  318                           
          c.  Court’s Analysis .......................  319                           
          3.  Mr. Shapiro ................................  322                       
          a.  Mr. Shapiro’s Expert Opinion ...........  322                           
          b.  Court’s Analysis .......................  325                           
          B.  Mr. Jouannet’s Response (Exhibit 226-P) ........  328                   
                                                                                     





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