-285-
In arguing that the reasonable cause exception applies,
petitioner points to his efforts to verify the factual
underpinnings of the contributed assets.
Petitioner points first to the memorandum that Kaye Scholer
prepared in the course of Safari’s failed effort to acquire New
MGM. We cannot agree that Kaye Scholer’s memorandum establishes
reasonable cause for SMP’s and Corona’s reporting positions.
Although Kaye Scholer’s legal due diligence provided Mr. Lerner
with a detailed picture of the relationships between the Credit
Lyonnais group and the MGM companies and the various tax
attributes that the Credit Lyonnais group possessed, that legal
due diligence occurred in the context of a proposed acquisition
of New MGM. It did not involve the transactions at issue in the
instant cases. In addition, the Kaye Scholer investigation
occurred in or about May 1996, before the sale of New MGM and MGM
Holdings’s dissolution, events which might have profoundly
affected any of the conclusions that Kaye Scholer reached
regarding the various tax attributes.200
Petitioner points next to what he characterizes as an
extensive due diligence process involving his attorney, James
200 Petitioner contends that a major focus of this
investigation was establishing the amount of the NOLs, which
petitioner contends was an important aspect of the subsequent
transaction involving CDR. We cannot agree. Although Kaye
Scholer documented the NOLs in the various MGM companies, the
NOLs in MGM Group Holdings were by no means a “major focus” of
its investigation.
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