-148-
SMHC when CLIS contributed the SMHC stock to SMP, the use of
those NOLs was not guaranteed. Use of the NOLs was subject to
the tax attribute rules of section 382. Under those rules, use
of the NOLs would be contingent on structuring a transaction in
such a way as to meet the “ownership change” rules of section
382(g). On this record, we cannot rule out the possibility that
CLIS’s contribution of the SMHC stock to SMP constituted an
“ownership change” for purposes of section 382(g) so that the
NOLs were unavailable after that point.103
Although petitioner claims that his due diligence efforts
for the transaction with CDR were directed at determining the
potential use of the NOLs in SMHC, the focus of his due diligence
was not on the NOLs, but on the built-in tax losses in the
receivables and SMHC stock. Mr. Lerner hired James Rhodes to
assist in the Ackerman group’s due diligence process. Mr.
Rhodes’ due diligence investigation appears to have been focused
exclusively on the banks’ bases in the SMHC receivables and
stock. For example, Mr. Rhodes’ “Basis Chronology” contained an
analysis of the bases in the SMHC receivables and stock; it does
103 Petitioner claims, without explanation, that an ownership
change for purposes of sec. 382(g) occurred when the banks
withdrew from SMP and that the NOLs were “substantially
diminished”. Petitioner claims, again without explanation, that
“SMHC’s net operating losses were not used because the SMHC
library was not sold, but rather was combined with the Troma film
library in a ‘C’ reorganization in 1999. That reorganization
completely eliminated the net operating losses.”
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