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not mention any NOLs.104 Also, on May 12, 1997, Mr. Rhodes
received a letter from White & Case, confirming that the banks
had not derived any U.S. tax benefit from the contribution of the
SMHC receivables and stock or the exercise of their put rights.
Shearman & Sterling also conducted due diligence on behalf of the
Ackerman group. Like Mr. Rhodes’s investigation, Shearman &
Sterling’s investigation focused on the tax bases in the SMHC
receivables and stock. See, e.g., Exhibit 166-J. The memoranda
that Shearman & Sterling prepared for Mr. Lerner discussed, among
other things, section 382. These memoranda, however, were
focused on that section’s potential application to the built-in
losses in the stock of MGM Holdings (and MGM Group Holdings) and
not NOLs.105
g. Contemporaneous Expression of Purpose
On December 12, 1996, the day after the transaction with
CDR purportedly closed, Mr. Lerner faxed to Jerry Carlton of
104 Mr. Lerner testified that he hired Mr. Rhodes to
investigate whether any transfers occurred using the NOLs in
SMHC. He testified that he was concerned that “if there had been
a transaction which had either disposed of or written down or
taken a tax benefit in respect of any of those interest, that it
would have--might have been treated as a transfer affecting the
use of the net operating loss in * * * [SMHC].” According to Mr.
Lerner, the best indication of such a transfer affecting the use
of the NOLs is whether there has been a basis step-up or
stepdown. We find petitioner’s testimony specious.
105 In the context of the proposed transactions in the
memoranda, Shearman & Sterling concluded that “Holdings and Group
will undergo an ownership change” for purposes of sec. 382.
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