- 93 -
Allocated Losses to Imperial, Imperial shall promptly contribute
cash in an amount equal to 20.0% of such Allocated Loss.” During
taxable year 1998, Imperial made a $14,595,652 capital
contribution in cash to Corona. This contribution was made in
connection with the 20-percent fee that Imperial had agreed to
pay SMP for the tax losses that it received from the Corona
transaction. SMP later received this $14,595,652 fee.
7. Treasury Bills
In 1997, Imperial had insufficient basis in Corona to
recognize the tax losses that were going to flow through from
Corona. Consequently, Imperial and Corona devised a scheme,
starting in 1997, in which Imperial would purchase U.S. Treasury
bills each yearend and simultaneously enter into a repurchase
agreement to sell those Treasury bills back at the beginning of
the next year. At each yearend, in order to increase its tax
basis in Corona, Imperial temporarily assigned the Treasury bills
and repurchase agreement to Corona. Imperial repeated the
Treasury bill transactions for its 1998 through 2001 taxable
years.
XII. Subsequent Transactions Involving TroMetro and Troma
A. Capital Contribution Agreement
As of March 1, 1999, SMHC and TroMetro entered into a
capital contribution agreement. Pursuant to this agreement,
TroMetro contributed, assigned, transferred, and conveyed to SMHC
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