ÿWPC2L 1?÷U ‰ê®^‹û¡ò2¦fï“WwÔðƒê¬^;Â2ÛH SX–ùYÅ%{L~pÇÏ7>«cžý^G…×l¶há%QÉö— úR~„ú*ò—Ä5Ô³‰)ŒßwFCëfVü»ºäâì¦Ù ñƒæBöº›ý<¢~â\ÀüV­T¾b*tçø“ï„åô g‡à¥Æÿ,R”¬LÜêf0xIßk_ÅK>rºÂXh®.½tÊêùåÛ ‚*ô˜8-!òÐÉÜàN¯åÜ®˜/þï£ÒBõ~Š—1ùpQ$½\Ëv9HÛ]/‘+kËe81xJ‚ÅL‡ßwôbi ÍVñ¬å¢hçF‹ÙÚ¾tZ²:„éØ>æþúi‡ñq Ä{ÌKµ§Ì—Qs‘NÎÞ_í dDÞ4û¥®ÚÆ èûu$OŸéu=ü|MzuÂRôv“ÍßÔ ‘™¬Šc¸Øh«€vÔàU)|܆‚°eÚ\f20ýIHÍŒŠaªøÓf+LkÕ‡xÆváIòæ ê2µû\"ðSØÇäòÝõ”’ >KHöØòÓêÁ–ÍLÒ[•l™‹NØjËtÈyú•€œÎ=bˆNæ´”(~ús»È@¯K¯þ0Œ¼Cb %\^ b 0ˆnU/NöwD4H\ zkÒå· m¹ #ÉÐ ¡™ Æ:ÆÆÆÆŒUNRN Í¢ 0 DoE³#µ®Øø†~U@” 1uÔ 72I 0c{Þ*ùùùM#! 0Z'! 0=! 0a¾! 0># 0h]# 0RÅ$ 0R& 0Ri' 0R»( 0R *b_+ 09g+ 0ž + 02>- 0úp- 0:j. 0V¤. 0\ú. 0V/ 0^0 0—u2 B* 4 D364 0™i4 0þ6 067 067 0:<8 0hv8 0FÞ8 B$9 BA9U6^9U<”9U*Ð9ú9==.=lM?M?ĹAr}FïFïFïF 0 ëG(ðGðGðG BHH 0¤5H D5ÙH D-I 0K;I;I AS†IÆÙI 0¤ŸJ 0DCK A«‡K»W­y/Ï (`£ª$¡¡Ñ€.ÑÑ8€½­»»d»»d8ÑÑ ý ÑÓ  Ó(í€"  Z6Times New Roman Regularqdj/b013c93|x ˜C:\PROGRA~1\COREL\WORDPE~1\TEMPLATE\CUSTOM~1\REVISE~1.WPTC:\Program Files\Corel\WordPerfect Office 2000\Template\Custom WP Templates\revised standard opinion.wptÿU‹ÿÀÀÀ˜\\IB01S01\CLERK1NASÈÈ,,,,ÈÈ0 —Ý ƒRªq$ÝÓ  Óà  àòòÚ  Ú4Ú  ÚóóÔ€ôµ!ò»»ÔÝ  ÝÔ_ÔThis€amount€is€equal€to€the€federal€taxable€income€plus€$15,000€in€estimated€payments€deducted€on€theÐ ° Ðconsolidated€federal€form.€€Essentially,€then,€ACT€reported€the€same€taxable€income€on€its€1996€federal€return€as€on€itsÐ tÄ Ð1996€F€&€E€return.Level 1Level 2Level 3Level 4Level 5‚Level 1Level 2Level 3Level 4Level 5„Level 1Level 2Level 3Level 4Level 5…Level 1Level 2Level 3Level 4Level 5(ÈhH  Z 6Times New Roman Regular ÃÝ ƒRªq$ÝÓ  Óà  àòòÚ  Ú2Ú  ÚóóÔ€ôµ!ò»»ÔÝ  ÝÔ_ÔIt€is€unclear€from€the€record€when€ACT€acquired€the€TransCor€stock.€€(#Ã$òòÚ  Ú0Ú  Úóó Ý ƒRªq$ÝÓ  Óà  àòòÚ  Ú8Ú  ÚóóÔ€ôµ!ò»»ÔÝ  ÝÔ_ÔLiterally€translated,€this€Latin€phrase€means€ð ðof€the€same€kind€or€class.ðð€€òòBlackððs€Law€Dictionary€óó535€(7thÐ ° Ðed.€1999).€€ HoskinsShmerlingMcAllisterKilcrease COAT.C.A.InmanMcCune WylaPosey ExhTransCornoncompete a]ll(recharacterizationLovin L.M.HuddlestoncaselawCommrNatlHinesGallowayejusdemRasarB.T.A.affdSchmerlingCarlinsU.S.Tax Heil B.R.BankrCelauro Depo ECA îÝ ƒRªq$ÝÓ  Óà  àòòÚ  Ú6Ú  ÚóóÔ€ôµ!ò»»ÔÝ  ÝÔ_ÔACT€challenges€the€1997€assessment€only€insofar€as€it€is€affected€by€the€1996€assessment.€€The€CommissionerÐ ° Ðagrees€that€the€propriety€of€the€1997€assessment€depends€on€the€propriety€of€the€1996€assessment.€€Therefore,€we€needÐ tÄ Ðnot€address€separately€the€propriety€of€the€Commissionerððs€assessment€related€to€the€1997€tax€year. Ý ƒRªq$ÝÓ  Óà  àòòÚ  Ú3Ú  ÚóóÔ€ôµ!ò»»ÔÝ  ÝÔ_ÔThe€record€indicates€that€ECA€had€no€tangible€assets€at€that€time,€and€that€ECA€transferred€only€intangibleÐ ° Ðassets€to€CCA.(ÈhH  Z(Times New Roman 3#37=CIQYag­­1.a.i.(1)(a)(i)1)a)i)(;3£$´´Ô2#ÔÚ  Ú0Ú  Ú.Ô3  Ôà0  à Ý ƒRªq$ÝÓ  Óà  àòòÚ  Ú10Ú  ÚóóÔ€ôµ!ò»»ÔÝ  ÝÔ_ÔExhibit€31contains€a€chart€to€illustrate€the€investments€of€ACT€in€ECA€for€each€year€beginning€in€April€1987Ð ° Ðand€ending€in€December€1996.€€The€total€investments,€according€to€the€chart,€equal€$2,557,000.€€Many€of€the€amountsÐ tÄ Ðon€that€chart,€however,€are€not€supported€by€evidence€in€the€record€other€than€Ô_ÔShmerlingÔ_Ôððs€testimony.€ Ý ƒRªq$ÝÓ  Óà  àòòÚ  Ú14Ú  ÚóóÔ€ôµ!ò»»ÔÝ  ÝÔ_ÔHoskins€subtracted€ACTððs€separate€loss€carryover€($184,199)€from€ACTððs€consolidated€loss€carryoverÐ ° Ð($2,108,089),€and€believed€that€the€difference€would€reflect€ECAððs€separate€loss€carryover,€which€he€considered€to€beÐ tÄ ÐACTððs€basis€in€ECA.€€Hoskins€did€not€claim€that€$1,923,890€is€the€precise€amount€of€the€basis€differential.€€ACT€statesÐ 8ˆ Ðin€its€brief€that€ð ðthe€tax€basis€for€state€purposes€was€$1,923,890€òò[or]€higheróó.ðð€€(Emphasis€added).€€In€other€words,€ACTÐ üL Ðdid€not€calculate€its€state€basis€in€ECA€by€reviewing€its€investments€and€ECAððs€income.€€Such€a€task€would€be€veryÐ À Ðdifficult€in€light€of€the€fact€that€there€are€no€separate€books€for€ECA.€€Rather,€ACT€clearly€determined€its€claimed€stateÐ „Ô Ðbasis€in€ECA€stock€by€referring€to€ACTððs€consolidated€loss€carryover€in€1996òòóó.0ÿÿ.NormalÔ S ÔÓ =jÓÓ =jÓ<ÿÿ:Definition T<’’ÿÿ:Definition LÓ , ÓÓ†|Ü(ÜÜ` ¸ hÀpÈ xÐ (#€%Ø'0*ˆ,à.813è5@8˜:ð<H? AøCPF¨HKXM°OR`T¸VYh[À]†ÓÓ  ÓÓ†|°(°` ¸ hÀpÈ xÐ (#€%Ø'0*ˆ,à.813è5@8˜:ð<H? AøCPF¨HKXM°OR`T¸VYh[À]`†Ó8ÿÿ6Definitionòòóó(­’ÿÿ&H1Ô S ÔÓ =jÓÔ&  Ôò òÔ€°°°ÔÓ 5ÓÔQ€Eô\  `$Times NewRomanQÔÔ  Ôó óÔ€XXXÔÓ 1[ÓÔQ€Eô\  `$Times NewRomanQÔÔ  Ô(¢‡ÿÿ&H2Ô S ÔÓ =jÓÔ&  Ôò òÔ€„„„ÔÓ ÔFÓÔQ€Eô\  `$Times NewRomanQÔó óÔ€XXXÔÓ 1[ÓÔQ€Eô\  `$Times NewRomanQÔ(¢‡ÿÿ&H3Ô S ÔÓ =jÓÔ&  Ôò òÔ€¼¼¼ÔÓ 1[ÓÔQ€Eô\  `$Times NewRomanQÔó óÔ€XXXÔÓ 1[ÓÔQ€Eô\  `$Times NewRomanQÔ(¢‡ÿÿ&H4Ô S ÔÓ =jÓÔ&  Ôò òÔ€XXXÔÓ =jÓÔQ€Eô\  `$Times NewRomanQÔó óÓ =jÓÔQ€Eô\  `$Times NewRomanQÔÔ€XXXÔ(¢‡ÿÿ&H5Ô S ÔÓ =jÓÔ&  Ôò òÔ€ôôôÔÓ €ÓÔQ€Eô\  `$Times NewRomanQÔó óÔ€XXXÔÓ 1[ÓÔQ€Eô\  `$Times NewRomanQÔ(¢‡ÿÿ&H6Ô S ÔÓ =jÓÔ&  Ôò òÔ€ÔÓ ŸÓÔQ€Eô\  `$Times NewRomanQÔó óÔ€XXXÔÓ 1[ÓÔQ€Eô\  `$Times NewRomanQÔ- ù-2ÿÿ0Addressòòóó8¹¬ÿÿ6BlockquoteÔ S ÔÓ =jÓÓ , ÓÓ , ÓÓ†|Ü(ÜÜ` ¸ hÀpÈ xÐ (#€%Ø'0*ˆ,à.813è5@8˜:ð<H? AøCPF¨HKXM°OR`T¸VYh[À]†ÓÓ  ÓÓ  ÓÓ†|°(°` ¸ hÀpÈ xÐ (#€%Ø'0*ˆ,à.813è5@8˜:ð<H? AøCPF¨HKXM°OR`T¸VYh[À]`†ÓÓ =jÓ,ÿÿ*CITEòòóó,djÿÿ*CODEÔ€ôôôÔÔK€D<þ6X9`(Courier NewKÔÔ€XXXÔÔQ€Eô\  `$Times NewRomanQÔ4ÿÿ2Emphasisòòóó6ÿÿ4HyperlinkòòÔ ÿ ÔóóÔ  Ô<ÿÿ:FollowedHypeòòÔ €€ ÔóóÔ  Ô4gmÿÿ2Keyboardò òÔ€ôôôÔÔK€D<þ6X9`(Courier NewKÔó óÔ€XXXÔÔQ€Eô\  `$Times NewRomanQÔ<êðÿÿ:PreformattedÓ†|°(°Ïî ,KkŠ©È (#€%Ø'0*ˆ,à.813è5@8˜:ð<H? AøCPF¨HKXM°OR`T¸VYh[À]`pbÈd g†ÓÔ€ôôôÔÔK€D<þ6X9`(Courier NewKÔÔ€XXXÔÔQ€Eô\  `$Times NewRomanQÔÓ†|°(°Ïî ,KkŠ©È (#€%Ø'0*ˆ,à.813è5@8˜:ð<H? AøCPF¨HKXM°OR`T¸VYh[À]`pbÈd g†Ó<¬®ÿÿ:z©Bottom of Ó?€:*€Ø **?ÓÓ  ÓÔB  ÔÔ€ÔÔ?€F%ä2¼A`Arial?ÔÓ/€Z € H/ÓÓ  ÓÔ€XXXÔÔQ€Eô\  `$Times NewRomanQÔ&ÿÿ0 d d9999'þÿÈÈÈÈdxd<®®ÿÿ:z©Top of ForÓA€:9*€Ø**AÓÓ  ÓÔB  ÔÔ€ÔÔ?€F%ä2¼A`Arial?ÔÓ/€Z € H/ÓÓ  ÓÔ€XXXÔÔQ€Eô\  `$Times NewRomanQÔ0djÿÿ.SampleÔ€XXXÔÔK€D<þ6X9`(Courier NewKÔÔ€XXXÔÔQ€Eô\  `$Times NewRomanQÔ0ÿÿ.Strongò òó ó8djÿÿ6TypewriterÔ€ôôôÔÔK€D<þ6X9`(Courier NewKÔÔ€XXXÔÔQ€Eô\  `$Times NewRomanQÔ4ÿÿ2Variableòòóó:ÿÿ8HTML MarkupÔB  ÔÔ ÿ ÔÔ  Ô2 ÿÿ0CommentÔB  Ôüÿ+ +dûÿX Xd<þ6X9`(Courier Newô\  `$Times NewRoman%ä2¼A`Arial Ý ƒRªq$ÝÓ  Óà  àòòÚ  Ú9Ú  ÚóóÔ€ôµ!ò»»ÔÝ  ÝÔ_Ôð ðAbandonmentðð€of€a€stock€is€typically€discussed€in€the€bankruptcy€context€when€a€bankruptcy€trustee€choosesÐ ° Ðto€abandon€a€stock€that€is€burdensome€to€the€estate€under€11€U.S.C.€ðð€554.€€In€such€cases,€it€must€be€shown€that€thereÐ tÄ Ðis€an€unequivocal€intent€to€abandon€the€property.€€ò òòòSee,€e.g.,€In€re€Heilóóó ó,€141€B.R.€112,€115€(Bankr.€N.D.€Tex.€1992).€Ð 8ˆ ÐOutside€the€bankruptcy€arena,€however,€there€is€very€little€authority€on€what€constitutes€ð ðabandonmentðð€of€a€stock€forÐ þN Ðpurposes€of€reporting€a€gain€or€loss€from€the€disposition€of€that€property€on€a€tax€return. Ñ ° Ñ Ý ƒRªq$ÝÓ  Óà  àòòÚ  Ú1Ú  ÚóóÔ€ôµ!ò»»ÔÝ  ÝÔ_ÔNÔ‡ôµ!òòôµ!Ôo€additional€capital€was€paid€into€ECA.€€ACT€contends€instead€that€it€financed€Ô_ÔECAÔ_Ôððs€operations€throughÐ ° Ða€series€of€advances€to€cover€Ô_ÔECAÔ_Ôððs€operating€losses,€and€paid€some€of€Ô_ÔECAÔ_Ôððs€debts€directly€on€behalf€of€ECA.€€Ô#†ôµ!òòôµ!#Ô bÝ ƒRªq$ÝÓ  Óà  àòòÚ  Ú5Ú  ÚóóÔ€ôµ!ò»»ÔÝ  ÝÔ_ÔThe€Commissionerððs€records€showed€that€ACT€had€a€separate€operating€loss€carryover€of€$236,896,€but€hadÐ ° Ðonly€utilized€$184,199€of€those€losses€on€the€1996€F€&€E€return,€leaving€a€$52,697€unused€carryover€loss.€€Therefore,Ð tÄ Ðfrom€the€$1,923,890€deduction€that€was€disallowed,€the€Commissioner€subtracted€$52,697,€then€multiplied€the€differenceÐ 8ˆ Ð($1,871,193)€by€the€6%€excise€tax€rate€to€arrive€at€her€assessment€of€$112,271.€ ºÝ ƒRªq$ÝÓ  Óà  àòòÚ  Ú7Ú  ÚóóÔ€ôµ!ò»»ÔÝ  ÝÔ_ÔACT€argues€that€the€trial€court€violated€Tennessee€Rule€of€Civil€Procedure€52€by€adopting€verbatim€theÐ ° Ðproposed€findings€of€fact€and€conclusions€of€law€submitted€by€the€Commissioner€without€critical€analysis€or€comment.€Ð tÄ ÐAs€the€Commissioner€notes,€however,€ò òòòóóó óð ðit€is€permissible€and€indeed€sometimes€desirable€for€the€trial€court€to€permitÐ 8ˆ Ðcounsel€for€any€party€to€submit€proposed€findings€and€conclusions.ðð€€ò òòòSee€Ô_ÔDelevanÔ_Ô„Delta€Corp.€v.€Robertsóóó ó,€611€S.W.2dÐ üL Ð51,€53€(Tenn.€1981).€€The€trial€courtððs€factual€findings,€even€when€they€result€from€the€adoption€of€a€partyððs€proposedÐ Â Ðfindings,€are€reviewed€in€light€of€the€record€on€appeal,€presuming€the€trial€courtððs€factual€findings€to€be€correct€unlessÐ †Ö Ðthe€evidence€preponderates€otherwise.€€òòò òSee,€e.g.,€Ô_ÔFulcherÔ_Ô€v.€Allenóóó ó,€2€S.W.3d€207,€214€(Tenn.€Ct.€App.€1999);€Tenn.€R.Ð J š ÐApp.€P.€13(d).€ hÑ X ÑÑ\R3Ø'Avery 5162 Address\Ñ Ñ ° Ñ(|G2ªq$¤¤Ý ƒ£ª!ÝÑ€.ÑÑ8€e»»dd8ÑÑ ý ÑÓ  ÓÝ  Ýà  àòòÚ  Ú0Ú  ÚóóÔ€ôµ!ò»»Ô d(|3?h$££Ý ƒ£ª!ÝÑ€.ÑÑ8€e»»dd8ÑÑ ý ÑÓ  ÓÝ  ÝVVVV)ÿÿ!dxdx)!ÈÈÈÈdxdx( ±þ$’’ò òFigure€Ú  Ú1Ú  Úó ó^_X`YEþÿ<<CÿÿƒLevel 1Level 2Level 3Level 4Level 5(|3?h$¢¢Ý ƒ£ª!ÝÑ€.ÑÑ8€e»»dd8ÑÑ ý ÑÓ  ÓÝ  Ý($$””ò òÚ  Ú1Ú  Úó óX[Z&OLE 2.0 Box <=8ÿÿÿÿÿÿÿÿÿÿCÿÿ HKKKKÝ ƒ£ª!ÝÑ€.ÑÑ8€e»»ddÈ8ÑÑ ý ÑÓ  ÓÝ  ÝÔ_ÔÑ  ÑÔ€¼e»»»ÔÑ8€EmXXdì»»d8ÑÑ  ÑÑ€HOYÑà@ü ü ìàÔ‡î eÔIN€THE€COURT€OF€APPEALS€OF€TENNESSEEˆÐ ° Ðà@kk$ìàAT€NASHVILLEÔ#†¼e»îî #ԈРÖ& ÐÓ  ÓJuly€10,€2003€SessionÐ üL ÐÔ‡XEmX»¼eÔÌò òÔ#†¼e»XXEm#ÔAMERICAN€CORRECTIONS€TRANSPORT,€INC.€Ð úJ Ðv.€Ð  ^ ÐRUTH€E.€JOHNSON,€COMMISSIONER€OF€Ð " r ÐREVENUE,€STATE€OF€TENNESSEEÔ‡XEmX»¼eÔó óÐ 6 † ÐÌà@@½½ìàò òAn€Appeal€from€the€Chancery€Court€for€Davidson€CountyÐ 6†  Ðà@@øøìàNo.€98„3639„I€€€€€€Irvin€H.€Kilcrease,€Jr.,€ChancellorÐ "r  ÐÌÌà@@ìì*ìàßA€V) °°` d€÷E<å` AßÐ æ6  ÐÌà@@TTìàNo.€M2002„01509„Ô_ÔCOAÔ_Ô„R3„CV€„€Filed€November€25,€Ô_Ô2003Ô_ÔÐ á1 ÐÌßA€V) °°` dE<¸` AßÐ ¹  Ðó óÌÓ  ÓThis€is€a€claim€for€a€refund€of€Tennessee€franchise€and€excise€taxes.€€From€1987€through€1998,€theÐ ´ Ðtaxpayer€corporation€was€the€sole€owner€of€stock€in€a€subsidiary€corporation.€€In€the€taxpayerððs€1996Ð  ð ÐTennessee€franchise€and€excise€tax€return,€the€taxpayer€claimed€a€deduction€based€on€its€assertionÐ ŒÜ Ðthat€the€stock€in€the€subsidiary€became€worthless€or€was€abandoned€in€1996,€and€that€its€basis€in€thatÐ xÈ Ðstock€for€state€tax€purposes€was€greater€than€its€basis€for€federal€tax€purposes.€€The€defendantÐ d´ ÐTennessee€Commissioner€of€Revenue€disallowed€the€deduction€and€sent€the€taxpayer€a€notice€ofÐ P  Ðassessment.€€The€taxpayer€paid€the€assessment,€then€filed€the€instant€lawsuit€for€a€refund.€€After€a€Ð <Œ Ðbench€trial,€the€trial€court€rejected€the€taxpayerððs€claim€and€denied€the€refund.€€The€taxpayer€appeals.€Ð (x ÐWe€affirm,€finding€that€the€taxpayer€submitted€insufficient€evidence€that€there€was€an€ð ðotherÐ d Ðdispositionðð€of€its€stock€in€1996€to€entitle€it€to€deduction€under€T.C.A.€ðð€67„4„805(b)(2)(D).€€In€theÐ P Ðalternative,€we€affirm€the€trial€courtððs€conclusion€that€the€taxpayer€did€not€submit€sufficient€evidenceÐ ì< Ðof€the€difference€in€its€basis€for€state€tax€purposes€and€its€basis€for€federal€tax€purposes€so€as€toÐ Ø( Ðjustify€the€claimed€deduction€under€T.C.A.€ðð€67„4„805(b)(2)(D).€€€€€€€€€€Ð Ä  ÐÓ@ÓÌò òTenn.€R.€App.€P.€3€Appeal€as€of€Right;€Judgment€of€the€Chancery€Court€is€Affirmedó óÐ œ"ì! ÐÌòòÓ  ÓÔ#†¼e»àXEmì#ÔÔ‡XEmX.¼eÔHolly€M.€Kirby,€J.óó,€delivered€the€opinion€of€the€court,€in€which€òòDavid€R.€Farmer,€J.,óó€andÐ t$Ä# ÐòòWilliam€H.€Inmanóó,€Sr.€J.,€joined.Ð `%° $ ÐÌW.€Gary€Blackburn€and€Malcolm€L.€McCune,€Nashville,€Tennessee,€for€the€appellant,€AmericanÐ 8'ˆ"& ÐCorrections€Transport,€Inc.Ð $(t#' ÐÌPaul€G.€Summers,€Attorney€General€&€Reporter,€Michael€E.€Moore,€Solicitor€General,€and€Wyla€M.Ð ü)L%) ÐPosey,€Assistant€Attorney€General,€Nashville,€Tennessee,€for€the€appellee,€Ruth€E.€Johnson,Ð è*8&* ÐCommissioner€of€Revenue,€State€of€Tennessee.Ð Ô+$'+ ÐÓå ÓÌò òÐ  ¬-ü(-ý ÐÔ_ÔÑ€NÇõÑÑ€OOaÑOPINIONó óÔ#†¼e»XXEm #ÔÐ ° ÐÌÓ  ÓÔ€XEmX»¼eÔÓ Óà  àÔ‡XEmXXXEmÔPlaintiff/Appellant€American€Corrections€Transport,€Inc.€(ð ðACTðð),€formerly€known€asÐ ®þ ÐPlanned€Facilities€Corporation,€was€incorporated€in€1984€to€provide€services€and€consulting€in€theÐ šê Ðfields€of€corrections€and€mental€health,€including€management,€design,€and€construction€ofÐ †Ö Ðspecialized€facilities,€property€ownership,€and€interstate€and€intrastate€extradition€and€transportationÐ r  Ðof€prisoners.€€In€1985,€Extradition€Corporation€of€America€(ð ðECAðð)€was€formed€to€engage€in€theÐ ^ ® Ðbusiness€of€interstate€transportation€of€prisoners.€€Ð J š Ðà  àOn€April€1,€1987,€ACT€acquired€all€of€the€stock€in€ECA€for€$475,000.€€Between€1987€andÐ " r  Ð1996,€ACT€asserts,€it€invested€a€total€of€$2,557,000€in€ECA€through€the€original€investment€ofÐ ^  Ð$475,000€to€purchase€ECAððs€stock,€plus€cash€advances€to€finance€ECAððs€operating€losses€and€theÐ úJ  Ðdirect€payment€of€ECAððs€ò òó óexpenses.׃J×Ý ƒ#ÃÝòòÚ  Ú1Ú  ÚóóÝ  Ý×  ×€€€€€€€Ô#†XEmXXXEm˜#ÔÔ‡XEmXXXEmÔÐ æ6  Ðà  àAfter€ACTððs€acquisition€of€ECAððs€stock€in€1987,€ECA€was€not€profitable.€€In€1990,€ECAÐ ¾  Ðceased€operations,€and€ACT€decided€to€license€out€ECAððs€assets.€€Accordingly,€on€August€1,€1990,Ð ªú  ÐACT€executed€a€licensing€agreement€with€TransCor€America€(ð ðTransCorðð).€€Though€ECA€was€notÐ –æ Ðmentioned€by€name€in€the€licensing€agreement,€the€agreement€indicates€that€ACT€licensed€toÐ ‚Ò ÐTransCor€ECAððs€prisoner€transportation€operations€and€as€well€as€its€operating€assets,€ð ðincludingÐ n¾ Ðtrade€secrets,€know„how,€computer€programs,€operating€standards€for€prisoner€transportation,Ð Zª Ðoperating€data,€customer€lists,€credit€information,€correspondence,€employee€records,€goodwill,Ð F– Ðtelephone€numbers€and€all€rights€to€perform€prisoner€transportation€and€receive€the€proceedsÐ 2‚ Ðtherefrom€on€any€contracts€presently€in€force€between€any€of€ACTððs€wholly€owned€subsidiaries€andÐ n Ðvarious€governmental€agencies.ðð€€In€return,€ACT€would€receive€four€percent€of€the€gross€revenuesÐ  Z Ðobtained€from€TransCorððs€extradition€business.€€The€licensing€agreement€does€not€reflect€thatÐ öF Ðsubsidiary€ECA€would€receive€any€consideration€for€the€licensing€of€its€assets.€€Ô#†XEmXXXEmU#ÔÔ‡XEmXXXEmÔ€€Ð â2 ÐÔ#†XEmXXXEm #ÔÔ‡XEmXXXEmÔà  àIn€1994,€ACT€owned€approximately€385,000€shares,€or€17%,€of€TransCor€stock.׃×Ý ƒ#ÃÝòòÚ  Ú2Ú  ÚóóÝ  Ý×  ×€€InÐ º  ÐDecember€1994,€TransCor€engaged€in€a€stock„for„stock€exchange€with€Corrections€Corporation€ofÐ ¦ö ÐAmerica€(ð ðCCAðð),€referred€to€herein€as€the€1994€CCA€sale.€€In€the€1994€CCA€sale,€TransCor€andÐ ’â ÐCCA€entered€into€a€sales€agreement,€under€which€the€shareholders€in€TransCor,€including€ACT,Ð ~ Î Ðtransferred€their€TransCor€stock€to€CCA€in€exchange€for€CCA€stock.€€ò òó óThe€CCA€stock€was€worthÐ j!º Ðmillions€of€dollars.€€Attached€to€the€1994€CCA€sale€agreement€was€a€separate€escrow€agreement,Ð V"¦  Ðproviding€that€10%€of€the€CCA€shares€would€be€held€in€an€escrow€account€for€a€period€of€one€to€twoÐ B#’! Ðyears€for€the€payment€of€claims€against€CCA.€€As€part€of€the€1994€CCA€sale,€ACT€and€TransCorÐ .$~" Ðâ âagreed€to€terminate€the€1990€licensing€agreement,€in€which€ACT€licensed€to€TransCor€ECAððsÐ %j # Ðoperating€assets;€instead,€ACT€transferred€to€CCA€all€of€ECAððs€operating€assets.׃×Ý ƒ#ÃÝòòÚ  Ú3Ú  ÚóóÝ  Ý×  ×€€ACT€also€gaveÐ ° Ðâ âCCA€the€sole€right€to€use€the€names€ð ðExtradition€Corporation€of€Americaðð€and€ð ðAmericanÐ œì ÐCorrections€Transport,€Inc.ðð€€In€exchange,€ACT€received€CCA€stock.€€In€addition,€as€part€of€the€1994Ð ˆØ ÐCCA€sale,€ECA€entered€into€an€agreement€not€to€compete€with€TransCor€for€five€years.€€TheÐ tÄ Ðdocumentation€of€the€1994€CCA€sale€does€not€reflect€that€ECA€received€any€consideration€for€theÐ `° Ðtransfer€of€its€assets€or€for€the€noncompete€agreement.Ð L œ Ðà  àAs€a€wholly„owned€subsidiary€of€ACT,€ECA€was€considered€part€of€ACTððs€ð ðaffiliated€groupððÐ $ t Ðfor€federal€income€tax€purposes.€€This€meant€that€ACT€could€file€a€consolidated€federal€income€taxÐ  ` Ðreturnò òó ó,€which€permitted€ACT€to€offset€its€taxable€income€by€the€losses€incurred€by€ECA€or€anotherÐ ü L  Ðbusiness€in€the€affiliated€group.€€In€exchange€for€this€consolidated€loss€utilization,€under€federal€law,Ð è 8  ÐACT€was€required€to€reduce€its€basis€in€the€ECA€stock€in€amounts€equal€to€the€ECA€losses€whichÐ Ô$  Ðwere€utilized€by€ACT€for€federal€tax€purposes.€€Ð À  Ðà  àIn€contrast,€under€Tennessee€law,€the€ð ðseparate€entityðð€rules€are€applied€for€Tennessee€Ð ˜è  ÐFranchise€&€Excise€(ð ðF€&€Eðð)€tax€purposes,€under€which€consolidated€F€&€E€tax€returns€are€notÐ „Ô  Ðpermitted.€€Consequently,€under€Tennessee€law,€ACT€and€ECA€were€required€to€file€separate€F€&Ð pÀ ÐE€tax€returns,€and€ACT€could€not€use€ECAððs€operating€losses€to€reduce€its€taxable€income€inÐ \¬ Ðcalculating€its€Tennessee€F€&€E€tax€liability.€€The€taxpayerððs€taxable€income€for€F€&€E€purposes,Ð H˜ Ðreferred€to€as€ð ðnet€earningsðð€in€the€Tennessee€statutes,€is€the€taxpayerððs€federal€taxable€income,Ð 4„ Ðbefore€the€operating€loss€deduction,€subject€to€adjustments€defined€in€Tennessee€Code€AnnotatedÐ  p Ððð€67„4„805(b).€€ò òòòSeeó óóó€Tenn.€Code€Ann.€ðð€67„4„805(a)€(1998).€€Ô#†XEmXXXEme#ÔÔ‡XEmXXXEmÔÐ  \ Ðà  àAfter€the€1994€CCA€sale,€ECA€filed€annual€corporate€reports€Ô#†XEmXXXEmD(#ÔÔ‡XEmXXXEmÔwith€the€ò òó óTennessee€SecretaryÐ ä4 Ðof€State€in€1995,€1996,€1997,€and€1998.€€ECA€also€filed€Tennessee€state€F€&€E€tax€returns€for€theÐ Ð  Ðtax€years€1989€through€1997.€€The€state€F€&€E€tax€returns€for€ECA€from€1990€through€1996€reflectÐ ¼  Ðno€business€activity€and€state€no€book€value€for€the€assets€of€the€company.€€The€balance€sheetÐ ¨ø Ðportions€of€those€state€tax€returns€were€typically€marked€ð ðdormant€corp.ðð€or€€ð ðreference€federal€returnÐ ”ä Ðattached.ðð€€In€1995€and€1996,€ECA€filed€separate€federal€returns,€showing€that€ECA€had€1000€sharesÐ €Ð Ðof€stock€outstanding€with€a€value€of€$1,000,€and€ð ðother€assetsðð€worth€$1,000.€€Ô#†XEmXXXEmã(#ÔÔ‡XEmXXXEmÔOn€all€of€ACTððsÐ l¼ Ðconsolidated€federal€returns€filed€after€1990,€a€notation€is€attached€stating€that€ð ð[a]ll€revenues,Ð X ¨ Ðexpenses€and€net€income€was€[sic]€generated€by€[ACT].€€In€addition,€the€subsidiary€[ECA]€has€noÐ D!” Ðassets,€or€liabilities.€€Therefore,€no€detail€of€financial€statements€have€been€prepared€showingÐ 0"€  Ðactivities€or€balances€of€the€subsidiary€companies.ðð€Ð #l! Ðà  àThe€ECA€stock€was€never€sold€by€ACT.€€ACT€filed€articles€of€dissolution€with€the€TennesseeÐ ô$D # ÐSecretary€of€State€on€October€2,€1997.€€ECA€was€dissolved€on€September€21,€1998.€€ò òó óÐ à%0!$ Ðà  àThe€subject€of€this€appeal€is€a€deduction€claimed€on€ACTððs€1996€state€F€&€E€tax€return.€€AsÐ ¸'#& Ðbackground,€by€1996,€according€to€the€1996€consolidated€federal€income€tax€return€of€ACTððsÐ ¤(ô#' Ðaffiliated€group,€ACT€and€its€affiliates€had€a€consolidated€operating€loss€carryover€of€$2,108,089,Ð ° Ðwhich€is€comprised€of€accumulated€operating€losses€over€the€prior€seven€years€that€had€not€yet€beenÐ œì Ðapplied€to€offset€income.€€In€1996,€ACT€sold€some€of€its€CCA€stock,€generating€a€capital€gain€ofÐ ˆØ Ð$3,178,967.€€To€offset€this,€ACT€properly€applied€the€entire€$2,108,089€in€consolidated€operatingÐ tÄ Ðloss€against€its€income€on€the€1996€consolidated€federal€tax€return,€making€its€total€taxable€incomeÐ `° Ð$248,099.Ô#†XEmXXXEm,#ÔÔ‡XEmXXXEmÔ€€Ð L œ Ðà  àOn€the€1996€Tennessee€state€F€&€E€tax€return€initially€filed€by€ACT,€ACT€also€sought€toÐ $ t Ðclaim€the€loss€carryover€deduction€of€$2,108,089,€which€made€its€taxable€income€on€that€returnÐ  ` Ð$263,099.׃ ×Ý ƒ#ÃÝòòÚ  Ú4Ú  ÚóóÝ  Ý×  ×€€Sometime€thereafter,€however,€the€Tennessee€Department€of€Revenue€informed€ACTÐ ü L  Ðthat€it€could€not€use€the€carryover€operating€loss€deduction€in€that€manner€on€the€state€F€&€E€taxÐ è 8  Ðreturn€because€of€Tennesseeððs€ð ðseparate€entityðð€rules.€€In€response,€in€March€1998,€ACT€filed€anÐ Ô$  Ðamended€1996€Tennessee€F€&€E€tax€return,€claiming€a€òòcapitalóó€loss,€rather€than€an€òòoperatingóó€loss.€Ð À  ÐThe€capital€loss€was€claimed€pursuant€to€Tennessee€Code€Annotated€ðð€67„4„805(b)(2)(D),€whichÐ ¬ü  Ðprovides€that,€for€F€&€E€tax€purposes:Ð ˜è  Ðà8  à[(b)](2)€€There€shall€be€subtracted€from€the€federal€taxable€income:ÐpÀÐ Ð  Ðà8  àà@$$(ìÐ Ð à*€*€*ˆÐ H˜ Ðà8  à€€€€(D)€€A€portion€of€the€gain€or€loss€of€the€sale€or€other€disposition€of€property€havingÐ  p Ða€higher€basis€for€Tennessee€excise€tax€purposes€than€federal€income€tax€purposesÐ  \ Ðmeasured€by€the€difference€in€the€Tennessee€basis€and€the€federal€basis€.€.€.€.€ÐøHÐ Ð  ÐÔ#†XEmXXXEm^2#ÔÔ‡XEmXXXEmÔTenn.€Code€Ann.€ðð€67„4„805(b)(2)(D)€(1998).€€Thus,€if€the€basis€in€property€for€Tennessee€exciseÐ Ð  Ðtax€purposes€(ð ðstate€basisðð)€is€greater€than€the€basis€for€federal€income€tax€purposes€(ð ðfederal€basisðð),Ð ¼  Ðthe€gain€or€loss€by€the€sale€or€ð ðother€dispositionðð€of€the€property€is€measured€by€the€differenceÐ ¨ø Ðbetween€the€state€basis€and€the€federal€basis.€€Under€this€ð ðbasis€differentialðð€deduction,€ACT€claimedÐ ”ä Ðthat€its€federal€basis€in€the€ECA€stock€was€zero,€because€all€the€losses€in€ECA€had€been€appliedÐ €Ð Ðagainst€income,€and€that€its€state€basis€in€the€ECA€stock€had€remained€unchanged.€€Ô#†XEmXXXEm‰8#ÔÔ‡XEmXXXEmÔThe€differenceÐ l¼ Ðbetween€the€two€was€claimed€as€a€deduction€by€ACT€on€Schedule€J€of€ACTððs€amended€1996Ð X ¨ ÐTennessee€F€&€E€tax€return,€which€stated€that€ACT€had€sustained€a€ð ð[p]ortion€of€capital€loss€notÐ D!” Ðincluded€in€federal€taxable€incomeðð€in€the€amount€of€$1,923,890.€€That€capital€loss,€combined€withÐ 0"€  ÐACTððs€own€operating€loss€carryover€of€$184,199,€gave€ACT€the€same€$2,108,089€deduction€as€wasÐ #l! Ðclaimed€on€the€F€&€E€tax€return€initially€filed€by€ACT,€and€therefore€resulted€in€the€same€taxableÐ $X" Ðâ âincome€of€$263,099.Ð ô$D # ÐÑNÇõÑâ NâÑX°ÑÑTRXì3Ø'Avery 5162 AddressXà3Ø' Letter3Ø'Avery 5160 AddressÔÑ  ÑÔ€¼ÿ3Ø'LetterTÑâ NâÑ  ÑÔ#†XEmXXXEm’;#ÔÔ‡XEmXXXEmÔà  àÔ#†XEmXXXEm @#ÔÔ‡XEmXXXEmÔOn€May€16,€1998,€the€Commissioner€sent€ACT€a€letter€and€a€Notice€of€AssessmentÐ ° Ð(ð ðNoticeðð)€for€$129,101.75€($112,271€in€tax€liability€and€$16,830.75€in€interest),׃K×Ý ƒ#ÃÝòòÚ  Ú5Ú  ÚóóÝ  Ý×  ×€disallowing€theÐ œì Ðâ â1996€capital€loss€deduction.€€Ô#†XEmXXXEm[@#ÔIn€addition,€the€Commissioner€assessed€against€ACT€$3,817.52€forÐ ˆØ Ðunpaid€estimated€F€&€E€taxes€for€1997.Ô‡XEmXXXEmÔ׃ ×Ý ƒ#ÃÝòòÚ  Ú6Ú  ÚóóÝ  Ý×  ×€€In€response,€on€June€26,€1998,€ACT€sent€the€CommissionerÐ tÄ Ðan€informal€conference€statement,€arguing€that€its€claim€of€ECAððs€operating€loss€carryover€on€itsÐ `° Ð1996€F€&€E€return€was€proper.€€ACT€asserted€that€ð ðCCA€.€.€.€acquired€the€stock€of€ECA€from€ACTÐ L œ Ðat€no€additional€cost,€with€the€intention€that€ECA€would€be€liquidated€by€CCAðð€in€the€1994€CCAÐ 8 ˆ Ðsale.€€This€was€later€corrected€in€a€letter€dated€July€31,€1998,€in€which€ACT€stated€that€ð ðit€has€justÐ $ t Ðcome€to€our€attention€that€[ACT]€still€currently€owns€all€the€stock€of€[ECA].ðð€€ACT€then€maintainedÐ  ` Ðthat€the€1996€deduction€was€based€on€the€write„off€of€worthless€ECA€stock,€thereby€generating€aÐ ü L  Ðcapital€loss€to€ACT.Ð è 8  Ðà  àIn€an€attempt€to€resolve€the€disputed€deduction,€ACT€participated€in€an€informal€taxpayerÐ À  Ðconference€with€a€Tennessee€Department€of€Revenue€administrative€hearing€officer.€€Subsequently,Ð ¬ü  Ðon€October€27,€1998,€the€Department€of€Revenue€administrative€hearing€officer€sent€a€letter€to€ACTÐ ˜è  Ðupholding€the€assessment.€€The€hearing€officer€concluded€that,€ð ð[a]lthough€the€Taxpayer€asserts€thatÐ „Ô  Ðthe€zero€basis€is€the€federal€basis€and€not€the€Tennessee€basis€in€the€stock,€I€find€no€legal€authorityÐ pÀ Ðwhich€supports€the€proposition€that€there€should€be€a€different€basis€in€the€stock€for€federal€orÐ \¬ ÐTennessee€purposes€under€these€facts.ðð€€The€hearing€officer€expressed€concern€over€ACTððsÐ H˜ Ðð ðrecharacterizationðð€of€the€deduction€from€an€operating€loss€of€a€subsidiary€to€a€capital€loss€from€theÐ 4„ Ðdisposition€of€stock,€stating:€€Ð  p Ðà8  àI€am€concerned€about€the€Taxpayerððs€recharacterization€of€the€deduction€from€the€netÐ øH Ðoperating€loss€of€a€subsidiary€to€capital€loss€from€the€sale€of€stock€to€a€write„off€ofÐ ä4 Ðworthless€stock.€€I€am€also€concerned€that€the€Taxpayer€appears€to€have€used€aÐ Ð  Ðpurchase€method€of€accounting€to€record€the€purchase€of€ECA,€whereby€the€fairÐ ¼  Ðmarket€value€of€ECAððs€assets€are€recorded€on€ACTððs€books€and€records.€€But€thenÐ ¨ø Ðwhen€trying€to€take€the€write„off€of€the€stock€as€worthless,€Taxpayer€asserts€that€itÐ ”ä Ðused€the€equity€method€of€accounting,€whereby€it€would€have€recorded€theÐ €Ð Ðinvestment€in€accounting€methods€and€the€numerous€changes€in€the€TaxpayerððsÐ l¼ Ðreasons€for€the€adjustment€weigh€against€the€validity€of€its€position.€ÐX ¨Ð Ð  ÐThe€hearing€officer€ultimately€concluded€that€ACT€ð ðhas€failed€to€present€clear€and€convincingÐ 0"€  Ðevidence€to€show€that€it€is€entitled€to€take€the€deduction€sought€in€this€case.ðð€€ACT€paid€theÐ #l! Ðassessment€under€protest.Ð $X" Ðà  àOn€December€8,€1998,€ACT€filed€the€lawsuit€in€the€trial€court€below€pursuant€to€TennesseeÐ à%0!$ ÐCode€Annotated€ðð€67„1„1801Ô#†XEmXXXEmsB#ÔÔ‡XEmXXXEmÔ,€seeking€a€refund€of€the€paid€tax€assessment.€€ACT€alleged€that€theÐ Ì&"% ÐÑOOaÑâ OâѰXÑâ OâÑ  ÑCommissionerððs€assessment€was€incorrect€and€contrary€to€Tennessee€Code€Annotated€ðð€67„4„Ð ° Ð805(b)(2)(D).€€The€parties€filed€cross„motions€for€summary€judgment,€which€were€denied€by€the€trialÐ œì Ðcourt€in€an€order€dated€May€31,€2001.Ð ˆØ Ðà  àA€bench€trial€was€held€on€July€9,€10,€and€11,€2001.€€ACT€submitted€the€testimony€of€severalÐ `° Ðwitnesses.€€Mike€Shmerling€(ð ðSchmerlingðð),€the€founder€of€ACT€and€a€Certified€Public€AccountantÐ L œ Ð(ð ðCPAðð),€testified€regarding€ACTððs€acquisition€of€ECA€and€ECAððs€losses€in€its€early€years.€€Ô#†XEmXXXEm£O#ÔÔ‡XEmXXXEmÔThoughÐ 8 ˆ Ðno€primary€accounting€documents€were€submitted,€Shmerling€explained€that€by€the€end€of€1996,Ð $ t ÐACT€had€invested€a€total€of€$2,557,000€in€ECA,€and€that€the€total€loss€in€ECA€was€approximatelyÐ  ` Ð$2,108,089,€the€amount€of€the€1996€loss€carryover.€€The€difference€between€the€investment€and€theÐ ü L  Ðtotal€loss,€he€explained,€was€due€to€the€loss€utilization€ACT€used€in€the€earlier€years.€€Shmerling€wasÐ è 8  Ðquestioned€about€the€licensing€agreement€between€ACT€and€TransCor€under€which€TransCor€paidÐ Ô$  ÐACT€a€licensing€fee€for€the€use€of€ECAððs€operating€assets.€€He€acknowledged€that€ACT€receivedÐ À  Ðincome€of€about€$800,000€in€royalties€under€the€agreement,€and€said€that€this€income€was€used€toÐ ¬ü  Ðpay€old€debts€of€ECA,€such€as€interest€on€loans,€legal€fees€and€the€like.€€He€testified€that€ECAððs€stockÐ ˜è  Ðbecame€worthless€and€was€abandoned€in€1996,€because€in€that€year€the€restrictions€under€the€escrowÐ „Ô  Ðagreement€in€the€1994€CCA€sale€(the€agreement€that€10%€of€CCA€shares€would€be€held€in€escrowÐ pÀ Ðfor€one€to€two€years)€had€closed,€and€the€remainder€of€the€CCA€stock€was€distributed.€€At€that€point,Ð \¬ ÐSchmerling€testified,€ECA€was€worthless,€and€the€ACT€board€of€directors€surrendered€the€ECA€stockÐ H˜ Ðto€ACTððs€attorneys€to€handle€ð ðin€the€course€of€winding€down€the€business.ðð€€Schmerling€wasÐ 4„ Ðquestioned€about€why€ECAððs€1996€federal€tax€return€reflected€that€ECA€had€$1,000€in€ð ðother€assetsððÐ  p Ðand€capital.€€Shmerling€explained€that€he€had€mistakenly€thought€that€the€federal€government€hadÐ  \ Ða€minimum€capital€requirement€of€$1,000,€and€so€he€simply€put€on€the€federal€return€that€ECA€hadÐ øH Ð$1,000€in€assets€and€capital.€€Despite€the€representation€on€the€federal€return,€Schmerling€said,€ECAÐ ä4 Ðwas€worthless€at€that€time.Ð Ð  Ðà  àACT€also€proffered€the€testimony€of€three€expert€witnesses.€€The€first€was€Mary€Ann€BrownÐ ¨ø Ð(ð ðBrownðð),€a€CPA.€€Brown€testified€that€she€had€reviewed€all€the€tax€returns€filed€by€ACT€and€ECA,Ð ”ä Ðand€concluded€from€this€review€that€when€the€ECA€stock€became€worthless,€ACT€was€entitled€toÐ €Ð Ðwrite€it€off€and€claim€the€basis€differential€deduction€on€its€1996€F€&€E€tax€return.€€In€BrownððsÐ l¼ Ðopinion,€the€appropriate€year€for€the€write€off€was€1996,€because€that€was€the€year€that€ACTððsÐ X ¨ Ðobligations€under€the€1994€CCA€sale€would€end,€and€the€rest€of€the€CCA€stock€would€be€distributed.€Ð D!” Ѐà  àACT€also€submitted€the€testimony€of€the€CPA€who€prepared€the€tax€returns€for€ACT€in€1996Ð #l! Ðand€1997,€Harvey€Hoskins€(ð ðHoskinsðð).€€Hoskins€said€that€the€amount€claimed€by€ACT€as€a€capitalÐ $X" Ðdeduction€on€its€1996€F€&€E€tax€return€($1,923,089)€represented€the€reduction€in€ACTððs€federal€basisÐ ô$D # Ðin€the€ECA€stock.€€He€asserted€that€ECA€was€worthless€at€that€time,€and€that,€therefore,€ACT€wasÐ à%0!$ Ðentitled€to€the€entire€deduction€in€1996€because€that€was€the€first€year€in€which€ACT€recognizedÐ Ì&"% Ðrevenue€against€which€it€could€utilize€its€operating€loss€carryover.€€Finally,€ACT€submitted€theÐ ¸'#& Ðtestimony€of€another€CPA,€Christopher€Lovin,€who€testified€about€when€a€disposition€occurs€forÐ ¤(ô#' Ðpurposes€of€reporting€a€gain€or€loss€on€that€property.€€Lovin€acknowledged€that€he€was€not€aware€ofÐ )à$( Ðan€instance€in€which€worthlessness€or€abandonment€of€a€stock€was€treated€as€a€ð ðdispositionðð€of€thatÐ |*Ì%) Ðasset.€€Nevertheless,€he€opined€that€the€primary€factor€in€determining€whether€it€was€an€ð ðotherÐ h+¸&* Ðdispositionðð€under€Tennessee€Code€Annotated€ðð€67„4„805(b)(2)(D)€would€be€whether€the€taxpayerÐ ° Ðhad€relinquished€all€of€its€rights€in€the€given€property.€Ð œì Ðà  àThe€Commissioner€called€one€witness,€Terri€McAllister€(ð ðMcAllisterðð),€as€an€expert€in€theÐ tÄ Ðfield€of€Tennessee€franchise€and€excise€tax€returns.€€Though€not€a€CPA,€McAllister€had€been€a€taxÐ `° Ðauditor€for€the€Tennessee€Department€of€Revenue€for€over€thirteen€years.€€McAllister€disagreed€withÐ L œ ÐBrownððs€assertion€that€ACTððs€deduction€was€proper.€€McAllister€said€that€the€F€&€E€return€initiallyÐ 8 ˆ Ðfiled€by€ACT,€claiming€the€$2.1€million€loss€carryover€deduction€on€the€consolidated€federal€incomeÐ $ t Ðtax€return,€was€improper€because€ACTððs€records€did€not€reflect€that€ACT€had€a€separate€netÐ  ` Ðoperating€loss€carryover€of€$2.1€million.€€The€amended€return€subsequently€filed€by€ACT€was€alsoÐ ü L  Ðimproper,€McAllister€asserted,€because€ACT€claimed€a€deduction€for€a€capital€loss,€but€included€noÐ è 8  Ðsupporting€documents€to€show€what€generated€that€capital€loss.€€McAllister€explained€that,Ð Ô$  Ðordinarily,€when€a€company€computes€a€capital€loss,€there€is€a€federal€form€Schedule€D€or€someÐ À  Ðother€computation€in€the€tax€return€showing€the€calculation€of€the€cost€basis€and€the€book€value€ofÐ ¬ü  Ðthe€asset,€and€then€the€corresponding€gain€or€loss€from€the€disposition€of€the€asset.€€In€this€case,Ð ˜è  ÐMcAllister€testified,€there€were€no€such€computations€on€ACTððs€tax€return€or€anywhere€else.€€€Ð „Ô  ÐMcAllister€further€testified€that€she€did€not€believe€that€ECA€was€worthless€in€1996,€because€theÐ pÀ Ðcorresponding€federal€income€tax€returns€for€ECA€listed€ð ðother€assetsðð€of€the€company€of€$1,000€andÐ \¬ Ð$1,000€in€capital€stockò òó ó.€€Ô#†XEmXXXEmS#ÔÐ H˜ Ðà  àAt€the€conclusion€of€the€trial,€the€trial€court€asked€both€parties€to€each€submit€proposedÐ  p Ðfindings€of€fact€and€conclusions€of€law.€€Both€parties€did€so.€€On€November€6,€2001,€the€trial€courtÐ  \ Ðentered€an€order€finding€in€favor€of€the€Commissioner€and€adopting€her€proposed€findings.€€On€MayÐ øH Ð21,€2002,€the€trial€court€entered€a€final€order€incorporating€the€Commissionerððs€proposed€findingsÐ ä4 Ðof€fact€and€conclusions€of€law.€€In€that€order,€the€trial€court€held€that€ACT€failed€to€show€by€clearÐ Ð  Ðand€convincing€evidence€that€its€ECA€stock€had€a€different€basis€for€state€F€&€E€tax€purposes€andÐ ¼  Ðfederal€income€tax€purposes.€€The€trial€court€further€found€that€ACT€had€failed€to€prove€itsÐ ¨ø Ðinvestment€in€ECA,€or€that€ECA€suffered€the€losses€in€the€amount€claimed.€€In€reaching€thatÐ ”ä Ðconclusion,€the€trial€court€noted€that€ACT€produced€no€original€primary€documents,€such€as€bookÐ €Ð Ðentries€or€canceled€checks,€to€support€its€claim.€€In€addition,€the€trial€court€held€that€ð ðACT€did€notÐ l¼ Ðdemonstrate,€by€clear€and€convincing€evidence,€that€it€disposed€of€its€ECA€stock€prior€to€1998.ðð€€InÐ X ¨ Ðits€conclusions€of€law,€the€trial€court€held€that€the€worthlessness€of€a€stock€does€not€constitute€anÐ D!” Ðð ðother€dispositionðð€for€purposes€of€Tennessee€Code€Annotated€ðð€67„4„805(b)(2)(D).€€In€theÐ 0"€  Ðalternative,€the€trial€court€determined€that,€even€if€the€worthlessness€of€stock€could€be€consideredÐ #l! Ðan€ð ðother€disposition,ðð€ACT€did€not€demonstrate€by€clear€and€convincing€evidence€that€its€ECAÐ $X" Ðstock€became€worthless€in€1996,€as€opposed€to€a€later€or€earlier€year.€€ò òòòSee€James€v.€Huddlestonó óóó,€795Ð ô$D # ÐS.W.2d€at€661,€663€(Tenn.€1990)€(noting€rule€that€taxpayer€must€prove€that€the€assessment€isÐ à%0!$ Ðincorrect€by€clear€and€convincing€evidence).€€Ð Ì&"% Ðà  àOn€appeal,€ACT€takes€the€same€position€as€it€did€in€the€trial€court.€€First,€ACT€argues€that,Ð ¤(ô#' Ðwhen€a€property€becomes€worthless€or€abandoned€by€an€identifiable€event,€that€event€constitutes€anÐ )à$( Ðð ðother€dispositionðð€for€purposes€of€Tennessee€Code€Annotated€ðð€67„4„805(b)(2)(D).€€ACT€contendsÐ |*Ì%) Ðthat€it€made€an€ð ðother€dispositionðð€of€its€ECA€stock€when€the€stock€became€worthless€and€wasÐ h+¸&* ÐÑHOYÑâ HâѰ°Ñâ HâÑ  Ñabandoned€in€1996.€€ACT€claims€that€1996€is€the€operative€year€because€that€was€the€year€in€whichÐ ° Ðthe€CCA€sale€was€finally€concluded€by€virtue€of€the€closing€of€the€escrow€agreement€in€which€theÐ œì Ðremaining€CCA€stock€was€held€and€the€final€distribution€of€the€CCA€shares€were€conveyed€underÐ ˆØ Ðthe€1994€CCA€sale€agreement.€€Therefore,€ACT€maintains,€it€is€entitled€to€a€deduction€pursuant€toÐ tÄ Ðsection€67„4„805(b)(2)(D)€in€an€amount€equal€to€the€difference€between€its€federal€basis€and€its€stateÐ `° Ðbasis€in€its€ECA€stock.€€ò òó óACT€argues€the€evidence€at€trial€showed€that€its€federal€basis€in€the€ECAÐ L œ Ðstock€was€reduced€to€zero€in€1996€when€it€utilized€the€entire€operating€loss€carryover€deductionÐ 8 ˆ Ðattributable€to€the€operating€losses€of€ECA€on€its€federal€income€tax€return.€€At€that€point,€ACTÐ $ t Ðargues,€it€was€entitled€to€deduct€the€entire€amount€of€its€state€basis€in€ECA€on€its€state€F€&€E€taxÐ  ` Ðreturn.Ð ü L  Ðà  àIn€response,€the€Commissioner€argues€that€the€ð ðsale€or€other€dispositionðð€to€which€the€stateÐ Ô$  Ðdeduction€in€section€67„4„805(b)(2)(D)€applies€does€not€include€a€property€becoming€worthless€orÐ À  Ðabandoned.€€Rather,€the€Commissioner€asserts,€ð ðother€dispositionðð€means€something€akin€to€a€sale,Ð ¬ü  Ðsuch€as€a€gift€or€a€liquidation.€€Nevertheless,€even€if€the€worthlessness€or€abandonment€of€a€stockÐ ˜è  Ðis€considered€a€ð ðdisposition,ðð€the€Commissioner€argues,€neither€of€those€events€took€place€in€1996Ð „Ô  Ðin€this€case.€€In€the€alternative,€the€Commissioner€maintains€that,€even€if€ACT€is€found€to€have€madeÐ pÀ Ðan€ð ðother€dispositionðð€of€the€ECA€stock€in€1996,€it€would€not€be€entitled€to€the€deduction€underÐ \¬ Ðsection€67„4„805(b)(2)(D),€because€it€did€not€submit€clear€and€convincing€evidence€of€the€differenceÐ H˜ Ðbetween€the€state€and€federal€bases€in€the€stock.€€€Ð 4„ Ðà  àOn€appeal,€the€trial€courtððs€findings€of€fact€are€reviewed€òòde€novoóó,€with€a€presumption€ofÐ  \ Ðcorrectness,€unless€the€preponderance€of€the€evidence€is€otherwise.׃M×Ý ƒ#ÃÝòòÚ  Ú7Ú  ÚóóÝ  Ý×  ×€€ò òòòSee€L.M.€Berry€&€Co.€v.Ð øH ÐHuddlestonóóó ó,€No.€01A01„9809„CH„00487,€1999€WL€976528,€at€*4€(Tenn.€Ct.€App.€Oct.€28,€1999).€Ð ä4 ÐQuestions€of€law€are€reviewed€òòde€novoóó,€with€no€presumption€of€correctness.€€ò òòòSee€Associated€PððshipÐ Ð  ÐI,€Inc.€v.€Huddlestonóóó ó,€889€S.W.2d€190,€194€(Tenn.€1994).Ô‡XEmXXXEmÔ€€An€issue€of€statutory€interpretation€isÐ ¼  Ðconsidered€to€be€a€question€of€law,€subject€to€òòde€novoóó€review.Ô#†XEmXXXEmN€#Ô€€€ò òòòWilkins€v.€Kellogg€Co.óóó ó,€48€S.W.3dÐ ¨ø Ð148,€151€(Tenn.€2001).Ð ”ä Ðà  àIn€its€first€issue€on€appeal,€ACT€presents€a€pure€question€of€law,€namely€whether€a€stockÐ l¼ Ðbecoming€worthless€or€abandoned€is€an€ð ðother€dispositionðð€of€that€stock€within€the€meaning€ofÐ X ¨ ÐTennessee€Code€Annotated€ðð€67„4„805(b)(2)(D).€€Ô‡XEmXXXEmÔIn€interpreting€a€statute,€the€role€of€the€court€is€toÐ D!” Ðð ðascertain€and€give€effect€to€the€legislative€intent.ðð€€ò òòòSharp€v.€Richardsonó óóó,€937€S.W.2d€846,€850Ð 0"€  Ðâ â(Tenn.€1996).€€Unless€the€statute€is€ambiguous,€legislative€intent€is€derived€from€the€face€of€theÐ #l! Ðstatute,€and€the€court€may€not€depart€from€the€ð ðnatural€and€ordinaryðð€meaning€of€the€language€usedÐ ° Ðin€it.€€ò òòòDavis€v.€Reaganó óóó,€951€S.W.2d€766,€768€(Tenn.€1997).Ô#†XEmXXXEm¦‚#Ô€€Ð œì Ðâ âà  àThe€plain€language€of€Tennessee€Code€Annotated€ðð€67„4„805(b)(2)(D)€requires€a€ð ðsale€orÐ tÄ Ðother€disposition€of€propertyðð€in€order€to€deduct€from€the€taxpayerððs€taxable€income€the€amount€ofÐ `° Ðthe€loss,€i.e.,€the€difference€between€the€state€and€federal€bases€in€the€property.€€Neither€party€citesÐ L œ Ðany€Tennessee€caselaw€regarding€what€constitutes€an€ð ðother€dispositionðð€under€the€statute.€Ð 8 ˆ ÐConsequently,€ACT€relies€on€federal€law€and€cases€from€other€jurisdictions€holding€that€the€eventÐ $ t Ðof€a€stock€becoming€worthless€can€constitute€a€ð ðdispositionðð€for€purposes€of€recognizing€gain€or€loss.€Ð  ` Ðò òòòSee,€e.g.,€White€v.€Commððró óóó,€1970€WL€(U.S.€Tax€Ct.)€1610€(U.S.€Tax€Ct.€May€28,€1970);€ò òòòFirst€NatððlÐ ü L  ÐBank€of€Minneapolis€v.€United€Statesóóó ó,€58€F.€Supp.€425€(D.€Minn.€1944);€ò òòòEdward€Hines€LumbarÐ è 8  ÐCo.€v.€Gallowayóóó ó,€154€P.2d€539€(Or.€1944).€€ACT€argues€that€a€stock€becomes€worthless€when€theÐ Ô$  Ðstock€has€no€book€value€and€an€identifiable€event€occurs€whereby€there€is€no€reasonable€expectationÐ À  Ðthat€the€stock€may€acquire€value€in€the€future€through€foreseeable€operations€of€the€corporation.€€ò òòòSeeÐ ¬ü  ÐWhiteóóó ó,€1970€WL€(U.S.€Tax€Ct.)€1610€(no€page€numbers€available).€€In€addition,€ACT€argues€that€theÐ ˜è  Ðabandonment€or€voluntary€surrender€of€a€stock€for€no€consideration€also€constitutes€a€ð ðdispositionððÐ „Ô  Ðfor€purposes€of€recognition€of€gain€or€loss.€€ò òòòSee€Commððr€v.€Finkóóó ó,€483€U.S.€89,€98„99€(1987).€€ACTÐ pÀ Ðstates€that€it€voluntarily€surrendered€its€ECA€stock€to€its€corporate€counsel€in€1996€for€noÐ \¬ Ðconsideration.€€Therefore,€at€that€time,€ACT€argues,€it€disposed€of€the€stock€by€abandonment€withinÐ H˜ Ðthe€meaning€of€the€statute.Ð 4„ Ðà  àIn€contrast,€the€Commissioner€contends€that€the€definition€of€€ð ðother€dispositionðð€must€haveÐ  \ Ða€meaning€similar€to€that€of€the€word€ð ðsale.ðð€€The€Commissioner€claims€that€the€doctrine€of€òòejusdemÐ øH Ðgenerisóó׃×Ý ƒ#ÃÝòòÚ  Ú8Ú  ÚóóÝ  Ý×  ×€applies€in€this€case,€meaning€that€where€general€words€follows€a€special€word€that€limitsÐ ä4 Ðthe€scope€of€the€statute,€the€general€words€will€be€construed€as€applying€to€things€of€the€same€kindÐ Ð  Ðor€class€as€those€indicated€by€the€preceding€special€word.€€ò òòòSee€Lyons€v.€Rasaróóó ó,€872€S.W.2d€895,€897Ð ¼  Ð(Tenn.€1994);€òòBlackððs€Law€Dictionary€óó535€(7th€ed.€1999).€€In€other€words,€ð ðother€dispositionððÐ ¨ø Ðshould€be€construed€to€mean€something€similar€to€the€ð ðsaleðð€of€property,€such€as€trading€the€propertyÐ ”ä Ðor€giving€it€to€someone€else.€€ò òòòSee€Walsh€v.€Division€of€Taxationóóó ó,€15€N.J.€Tax€180,€183€(1995)Ð €Ð Ð(holding€that€a€write„off€of€a€non„business€bad€debt€was€not€a€disposition€of€property€under€NewÐ l¼ ÐJersey€law€based€on€the€doctrine€of€òòejusdem€generisóó).€€One€cannot€dispose€of€property,€theÐ X ¨ ÐCommissioner€contends,€by€simply€holding€on€to€the€property€as€it€becomes€less€valuable€over€time.€Ð D!” ÐRather,€the€ð ðdispositionðð€of€property€means€taking€active€steps€that€result€in€the€taxpayer€no€longerÐ 0"€  Ðpossessing€the€property€at€issue.€€She€maintains€that€the€stock€in€ECA€was€not€disposed€of€by€ACT;Ð #l! Ðit€simply€devalued.€€The€Commissioner€argues€that€ACT€took€no€clear€action€to€relinquish€controlÐ $X" Ðin€the€stock€in€order€to€claim€a€ð ðdispositionðð€for€purposes€of€realizing€a€gain€or€loss€on€the€stock.€€Ð ô$D # Ðà  àAssuming,€without€deciding,€that€the€event€of€a€stock€becoming€worthless€or€abandoned€canÐ à%0!$ Ðbe€considered€an€ð ðother€dispositionðð€under€Tennessee€Code€Annotated€ðð€67„4„805(b)(2)(D),€weÐ Ì&"% Ðexamine€the€trial€courtððs€conclusion€that€ACT€had€not€demonstrated€that€the€ECA€stock€it€heldÐ ¸'#& Ðbecame€worthless€or€was€abandoned€in€the€tax€year€1996,€as€opposed€to€a€later€or€earlier€year.€Ð ¤(ô#' Ðà  àACT€contends€that€it€proved€that€its€ECA€stock€became€worthless€for€purposes€ofÐ ° Ðð ðdispositionðð€in€1996.€€ACT€reasons€that€a€stock€becomes€worthless€when€two€things€occurÐ œì Ðcontemporaneously:€when€the€stock€has€no€book€value,€and€when€an€identifiable€event€occursÐ ˆØ Ðwhereby€there€is€no€reasonable€expectation€that€the€stock€will€ever€acquire€value€through€foreseeableÐ tÄ Ðoperations€of€the€corporation.€€ACT€argues€that€1996€was€the€first€year€in€which€both€of€theseÐ `° Ðrequirements€were€satisfied.€€First,€ACT€claims,€in€1996,€ECA€had€no€book€value.€€Second,€1996Ð L œ Ðwas€the€year€in€which€the€escrow€account€established€in€the€1994€CCA€sale€was€closed€and€theÐ 8 ˆ Ðremaining€shares€of€CCA€stock€were€distributed.€€At€that€point,€ACT€argues,€the€closing€of€theÐ $ t Ðescrow€account€and€the€ACT€boardððs€ò òó ódecision€that€ECA€would€never€again€be€operationalÐ  ` Ðconstituted€identifiable€events€whereby€there€ceased€to€be€any€reasonable€expectation€that€the€ECAÐ ü L  Ðstock€would€acquire€value€through€foreseeable€future€operations.Ð è 8  Ðà  àIn€the€caselaw€cited€by€ACT€holding€that€the€worthlessness€of€stock€can€be€considered€aÐ À  Ðð ðdispositionðð€in€order€for€stock€to€become€worthless€in€a€certain€year,€there€must€be€an€identifiableÐ ¬ü  Ðevent€in€that€year€to€show€that€the€worthlessness€actually€occurred€in€that€year,€as€opposed€to€aÐ ˜è  Ðprevious€or€later€year.€€As€held€in€ò òòòWhiteóóó ó,€a€stock€is€considered€worthless€when€there€is€no€reasonableÐ „Ô  Ðhope€of€potential€value:€ð ðThe€loss€of€potential€value,€if€it€exists,€can€be€established€ordinarily€withÐ pÀ Ðsatisfaction€only€by€some€ððidentifiable€eventðð€in€the€corporationððs€life€which€puts€an€end€to€such€hopeÐ \¬ Ðand€expectation.ðð€€òòò òWhiteóóó ó,€1970€WL€(U.S.€Tax€Ct.)€1610;€òòò òsee€Morton€v.€Commððróóó ó,€38€B.T.A.€1270,Ð H˜ Ð1278„79€(1938),€òòò òaffððd€óóó ó112€F.2d€320€(7th€Cir.€1940).€€Examples€of€such€ð ðidentifiable€events,ðð€theÐ 4„ Ðcourt€reasoned,€are€ð ðbankruptcy,òò€cessation€from€doing€businessóó,€or€liquidation€of€the€corporation,Ð  p Ðor€the€appointment€of€a€receiver€for€it.ðð€€ò òòòWhiteóóó ó,€1970€WL€(U.S.€Tax€Ct.)€1610€(emphasis€added).€Ð  \ Ðà  àACT€claims€that€this€identifiable€event€occurred€in€1996,€because€that€is€the€year€in€whichÐ ä4 Ðthe€1994€CCA€sale€became€irrevocable€through€the€closing€of€the€escrow€account€and,€therefore,€Ð Ð  ÐECAððs€contractual€obligations€in€the€1994€CCA€sale€were€met€at€that€time.€€ACT€relies€on€the€expertÐ ¼  Ðtestimony€of€Mary€Ann€Brown,€who€admitted€that€she€had€not,€in€fact,€read€the€escrow€agreement.€Ð ¨ø ÐA€review€of€the€transaction€belies€ACTððs€assertion.€€In€the€1994€transaction,€ECAððs€operating€assets,Ð ”ä Ðinstead€of€being€licensed€to€TransCor,€were€transferred€from€ACT€to€CCA.€€CCA€was€also€given€theÐ €Ð Ðsole€right€to€use€ECAððs€name.€€TransCor€stock€was€to€be€exchanged€for€CCA€stock.€€All€of€thisÐ l¼ Ðoccurred€in€1994,€not€1996.€€As€part€of€the€1994€transaction,€a€separate€escrow€agreement€wasÐ X ¨ Ðentered€into,€whereby€10%€of€the€CCA€stock€was€set€aside€in€an€escrow€account€for€one€to€two€yearsÐ D!” Ðto€be€available€to€fund€any€claims€filed€against€CCA,€some€general€and€some€specific.€€ECA,€as€aÐ 0"€  Ðseparate€entity,€was€not€even€a€party€to€the€1994€CCA€sale€or€the€escrow€agreement.€€ECAððs€onlyÐ #l! Ðcontractual€obligation€in€that€stock€exchange€arose€out€of€a€covenant€not€to€compete€with€CCA,Ð $X" Ðwhich€was€to€last€five€years€in€duration.€Therefore,€if€ECA€is€bound€by€any€contractual€obligationÐ ô$D # Ðafter€1994,€that€obligation€lasted€until€1999.€€Moreover,€the€escrow€agreement€contained€noÐ à%0!$ Ðmechanism€for€ECAððs€assets€or€name€to€be€transferred€back€or€for€the€transfer€of€assets€to€beÐ Ì&"% Ðð ðrevokedðð;€the€expiration€of€the€escrow€agreement€meant€only€that€CCA€stock€was€no€longer€setÐ ¸'#& Ðaside€to€fund€claims.Ð ¤(ô#' Ðà  àMore€directly,€Schmerlingððs€own€testimony€shows€that,€from€1990€forward,€ACT€had€noÐ |*Ì%) Ðreasonable€expectation€that€the€ECA€stock€would€acquire€value€through€foreseeable€futureÐ h+¸&* Ðoperations.€€Shmerling€testified€that€ECA€conducted€no€business€after€ACT€licensed€away€its€assetsÐ ° Ðto€TransCor€in€1990,€and€that€ECA€had€no€assets€or€liabilities€after€that€time.€€Schmerling€said€that€Ð œì ÐECA€had€been€losing€money€for€three€years,€and€ACT€licensed€away€the€assets€to€cut€its€losses.€Ð ˆØ ÐWhen€asked€whether€ECA€had€any€ð ðpotential€for€future€valueðð€in€1993,€during€the€licensingÐ tÄ Ðagreement,€Shmerling€said€simply,€ð ðNo.ðð€€The€record€contains€no€indication€that€ECA€was€everÐ `° Ðexpected€to€resume€operations€after€that€point.€€Although€ECAððs€1995€and€1996€federal€tax€returnsÐ L œ Ðshowed€that€ECA€had€$1,000€in€ð ðother€assetsðð,€Shmerling€explained€that€this€was€merely€anÐ 8 ˆ Ðaccounting€entry€made€in€an€attempt€to€comply€with€an€unidentified€federal€regulation.€€Even€if€ECAÐ $ t Ðhad€value,€or€there€was€a€glimmer€of€a€reasonable€expectation€of€future€value,€during€the€course€ofÐ  ` Ðthe€licensing€agreement,€any€such€value€or€expectation€of€value€ended€when€the€parties€executed€theÐ ü L  Ð1994€CCA€sale€agreement.€€Indeed,€ACTððs€original€position€with€the€Commissioner€reflects€itsÐ è 8  Ðmistaken€presumption€that€the€ECA€shares€had€been€sold€as€part€of€the€1994€CCA€stock€exchange.€Ð Ô$  ÐThus,€the€record€demonstrates€that€the€cessation€of€any€reasonable€expectation€of€future€value€forÐ À  ÐECA€occurred€well€before€1996.€€The€expiration€of€the€escrow€agreement€clearly€would€notÐ ¬ü  Ðconstitute€an€ð ðidentifiable€eventðð€showing€that€the€ECA€stock€became€worthless€in€that€year.€€ò òòòSeeÐ ˜è  ÐCarlins€v.€Commððr€of€Revenueóóó ó,€1988€WL€(U.S.Tax€Ct.)€13212€(U.S.€Tax€Ct.€Feb.€25,€1988)Ð „Ô  Ð(holding€that€stock€is€worthless€when€it€has€no€potential€value).€€For€these€reasons,€even€if€a€propertyÐ pÀ Ðbecoming€worthless€can€constitute€a€ð ðdispositionðð€of€that€property€under€section€67„4„805(b)(2)(D),Ð \¬ Ðclearly€ECAððs€stock€became€worthless,€if€at€all,€in€a€year€other€than€1996.Ð H˜ Ðà  àACT€also€argues€that€its€abandonment€of€the€ECA€stock€would€constitute€an€ð ðotherÐ  p Ðdispositionðð€for€purposes€of€section€67„4„805(b)(2)(D).׃G×Ý ƒ#ÃÝòòÚ  Ú9Ú  ÚóóÝ  Ý×  ×€€ACT€claims€that€it€abandoned€the€ECAÐ  \ Ðstock€in€1996€when€it€surrendered€the€stock€certificate€to€its€lawyers€to€handle€the€ð ðwinding€downððÐ øH Ðof€the€business.€€ACT€cites€no€authority€to€support€its€contention€that€disavowing€the€stock€andÐ ä4 Ðhanding€it€over€to€corporate€counsel€constitutes€legal€abandonment€of€that€property.€€The€undisputedÐ Ð  Ðevidence€shows€that€ACT€remained€the€sole€shareholder€in€ECA€stock€at€least€until€ACTððsÐ ¼  Ðdissolution€in€1997.€€ECA€itself€was€not€dissolved€until€1998.€€ACTððs€1996€federal€income€tax€returnÐ ¨ø Ðincluded€no€indication€that€it€intended€to€dispose€of€the€ECA€stock€by€abandonment€or€otherwise.€Ð ”ä ÐIn€fact,€ACTððs€1997€federal€return€shows€that€the€company€still€owned€all€of€ECAððs€stock.€€Thus,Ð €Ð Ðassuming,€without€deciding,€that€the€abandonment€of€stock€can€constitute€an€ð ðother€dispositionðð€forÐ l¼ Ðpurposes€of€the€Tennessee€Code€Annotated€ðð€67„4„805(b)(2)(D),€ACTððs€conduct€falls€short€of€a€clearÐ X ¨ Ðabandonment.€Ð D!” Ðà  àWe€now€address€the€trial€courtððs€additional€basis€for€rejecting€ACTððs€claim.€€The€trial€courtÐ #l! Ðdetermined€that€ACT€submitted€insufficient€evidence€to€establish€the€amount€of€its€investment€inÐ $X" ÐECA€and€the€amount€of€the€losses€attributable€to€ECA.€€Consequently,€the€trial€court€concluded€thatÐ ô$D # Ðð ðACT€has€failed€to€show,€by€clear€and€convincing€evidence,€that€ECA€ever€had€a€different€basis€forÐ à%0!$ Ðstate€excise€tax€purposes€than€for€federal€income€tax€purposes.ðð€€Thus,€under€that€holding,€even€ifÐ Ì&"% Ðthere€was€a€ð ðdispositionðð€of€the€ECA€stock€in€1996,€ACT€did€not€prove€by€clear€and€convincingÐ ° Ðevidence€the€amount€of€the€deduction€to€which€it€was€entitled,€i.e.,€the€difference€between€its€federalÐ œì Ðand€state€bases€in€the€ECA€stock.Ð ˆØ Ðà  àACT€argues€that€the€evidence€submitted€at€trial€established€the€amount€of€its€investments€inÐ `° Ðand€losses€from€the€operation€of€ECA.€€Regarding€its€investments,€ACT€claims€that€the€testimonyÐ L œ Ðof€its€witnesses€showed€that€ACT€had€invested€over€$2.5€million€in€ECA.€€Shmerling€testified€thatÐ 8 ˆ ÐACT€paid€$475,000€initially€for€the€ECA€stock.€€Subsequently,€he€said,€ACT€obtained€loans€to€makeÐ $ t Ðcash€advances€to€the€company,€and€it€also€paid€some€of€ECAððs€expenses€directly.׃×Ý ƒ#ÃÝòòÚ  Ú10Ú  ÚóóÝ  Ý×  ×€€SchmerlingÐ  ` Ðcontended€that€ACT€made€loans€to€ECA€which€ECA€did€not€have€the€income€to€repay.€€SchmerlingÐ ü L  Ðasserted€that€approximately€90%€of€the€$2,108,089€consolidated€net€operating€loss€on€ACTððs€1996Ð è 8  Ðfederal€return€was€attributable€to€ECAððs€losses,€though€no€financial€documents€were€submitted€intoÐ Ô$  Ðevidence€to€support€his€assertion.€€Hoskins,€who€prepared€ACTððs€1996€returns,€determined€thatÐ À  Ð$1,923,890€should€be€deducted€on€ACTððs€1996€F€&€E€return€because€that€amount€was€ACTððsÐ ¬ü  Ðconsolidated€net€operating€loss€carryover€amount€($2,108,089)€less€the€amount€of€ACTððs€separateÐ ˜è  Ðnet€operating€loss€of€($184,199).€€According€to€ACT,€the€difference€represents€the€amount€of€theÐ „Ô  ÐECA€net€operating€loss€that€ACT€used€to€offset€income€on€its€consolidatedò òó ó1996€federal€return.€Ð pÀ ÐBecause€ACT€utilized€the€remainder€of€ECAððs€operating€loss€carryover€for€federal€tax€purposes,Ð \¬ ÐACTððs€federal€basis€in€the€ECA€stock€was€reduced€at€least€by€that€amount.€€ACTððs€state€basis€wasÐ H˜ Ðnot€reduced,€ACT€argues,€and€so€its€basis€for€state€tax€purposes€remained€at€$1,923,890€or€higher.€Ð 4„ ÐACT€maintains€that€permitting€it€to€take€this€deduction€is€consistent€with€the€purpose€of€section€67„Ð  p Ð4„805(b)(2)(D),€which€is€to€remedy€the€unfairness€caused€by€exposing€taxpayers€to€greater€state€taxÐ  \ Ðliability€because€of€federal€consolidated€loss€utilization€rules.€€òòò òSee€South€Cent.€Bell€Tel.€Co.€v.Ð øH ÐCelauroó óóó,€754€S.W.2d€605,€608€(Tenn.€1988).€€€Ð ä4 Ðà  àIn€response,€the€Commissioner€argues€that€ACT€failed€to€provide€sufficient€documentationÐ ¼  Ðregarding€the€amount€of€its€basis€in€the€ECA€stock€in€order€to€grant€it€the€deduction€under€sectionÐ ¨ø Ð67„4„805(b)(2)(D).€€In€order€to€prove€the€basis€differential,€the€Commissioner€contends,€ACT€mustÐ ”ä Ðshow€(1)€the€amount€of€money€that€it€invested€in€ECA,€thus€establishing€the€amount€of€the€state€andÐ €Ð Ðfederal€bases€for€the€stock;€(2)€how€the€federal€basis€in€the€ECA€stock€was€affected€over€time€byÐ l¼ Ðadditional€investments€or€gains€that€could€increase€the€basis€or€losses€that€would€lower€the€basis,Ð X ¨ Ðsince€the€parties€agree€that€the€basis€for€state€tax€purposes€would€not€have€been€reduced;€and€(3)€thatÐ D!” Ðthe€ECA€stock€became€worthless€in€1996.€€The€Commissioner€argues€that€the€evidence€of€the€amountÐ 0"€  Ðof€ACTððs€investment€in€ECA€is€unclear,€because€some€of€the€contributions€to€ECA€were€made€fromÐ #l! Ðproceeds€of€loans€made€to€ACT€for€a€combination€of€business€purposes,€some€unrelated€to€ECA.€Ð $X" ÐThe€amount€of€ECAððs€gains€and€losses€over€the€years€is€also€unclear,€the€Commissioner€argues,Ð ô$D # Ðbecause€the€returns€filed€by€ACT€and€ECA€lack€ð ðsingle€entityðð€information.€€For€example,€on€ACTððsÐ à%0!$ Ð1989€consolidated€federal€tax€return€filed€for€ACTððs€ð ðaffiliated€groupðð€that€included€ECA€and€otherÐ Ì&"% Ðentities,€the€ECA€stock€is€not€listed€on€ACTððs€balance€sheet€as€an€asset,€which€amount€would€reflectÐ ¸'#& Ðthe€amount€of€ACTððs€basis€in€that€asset.€€Thus,€the€Commissioner€argues,€there€was€no€way€toÐ ° Ðdetermine€the€amount€of€ACTððs€basis€in€the€ECA€stock.€€As€another€example€of€conflictingÐ œì Ðinformation€reported€by€ACT,€the€Commissioner€notes€that,€for€the€tax€years€1991„1995,€ECA€filedÐ ˆØ Ðstate€F€&€E€tax€returns€that€showed€no€assets€or€liabilities,€yet€ACT€claims€that€it€made€investmentsÐ tÄ Ðin€ECA€of€$38,000,€$49,000,€$27,000,€$12,000,€and€$45,000€respectively€in€those€years€by€directlyÐ `° Ðpaying€ECAððs€debts.€€Such€investments€would€have€resulted€in€a€corresponding€increase€in€ACTððsÐ L œ Ðfederal€basis€in€the€ECA€stock,€ð ðclosing€the€gapðð€between€the€federal€basis€and€the€state€basis.€€Ð 8 ˆ Ðà  àThe€issue€of€whether€the€evidence€is€sufficient€to€show€the€amount€of€the€difference€in€ACTððsÐ  ` Ðbases€in€the€ECA€stock€for€state€and€federal€tax€purposes€is€a€questionØ Ø€of€fact.€€Therefore,€we€mustÐ ü L  Ðreview€the€issue€òòde€novoóó€on€the€record,€presuming€the€trial€courtððs€decision€to€be€correct€unless€theÐ è 8  Ðevidence€preponderates€otherwise.€€We€are€mindful€that€a€tax€assessment€made€by€the€CommissionerÐ Ô$  Ðof€Revenue€ð ðshall€be€presumed€accurate€unless€records€are€submitted€evidencing€otherwise.ðð€€Tenn.Ð À  ÐCode€Ann.€ðð€67„1„1438(a)€(1998).€€We€also€note€that€the€burden€is€on€ACT€to€show€by€clear€andÐ ¬ü  Ðconvincing€evidence€that€the€tax€assessment€against€it€was€incorrect.€€ò òòòJames€v.€Huddlestonóóó ó,€795Ð ˜è  ÐS.W.2d€661,€663€(Tenn.€1990).€€Ð „Ô  Ðà  àThe€record€in€this€case€contains€evidence€to€show€that€ACT€invested€large€sums€of€moneyÐ \¬ Ðin€ECA.€€However,€the€evidence€also€showed€that€ACTððs€basis€in€the€ECA€stock€may€have€fluctuatedÐ H˜ Ðover€time,€and€there€is€no€way€to€determine€from€the€record€the€amount€of€that€fluctuation,€in€partÐ 4„ Ðbecause€ACT€failed€to€keep€any€ð ðseparate€entityðð€records€for€ECA€after€the€1990€licensingÐ  p Ðagreement.€€Shmerling€stated€in€his€deposition€that€he€did€not€know€whether€ACT€and€ECAÐ  \ Ðmaintained€separate€bank€accounts,€stating€that€ð ðitððs€expensive€to€maintain€a€bank€account.ðð€€HeÐ øH Ðasserted€that€ð ðACT€paid€bills€on€behalf€of€ECA€through€1996.ðð€€Between€1991€and€1995,€ACTÐ ä4 Ðclaimed€to€have€invested€$171,000€in€ECA€by€directly€paying€ECAððs€debts.€€Despite€all€of€this,Ð Ð  ÐECAððs€post„1990€tax€returns€reflected€that€ECA€had€no€debts€during€that€time.€€Furthermore,€ACTÐ ¼  Ðproffered€no€evidence€showing€whether€those€payments€were€made€for€debts€of€ECA,€ACT,€or€someÐ ¨ø Ðother€business€in€the€affiliated€group.€€ò òó óMoreover,€it€is€undisputed€that€ACT€licensed€out€ECAððs€assetsÐ ”ä Ðbetween€1990€and€1994.€€Nevertheless,€ACT€attributed€no€income€to€ECA€from€the€licensing€ofÐ €Ð ÐECAððs€assets.€€The€Commissionerððs€expert€at€trial€testified€that,€whenever€ECAððs€assets€wereÐ l¼ Ðlicensed,€transferred€or€sold,€some€consideration€must€have€been€given,€and€that€consideration€mustÐ X ¨ Ðbe€taken€into€account€when€determining€ACTððs€basis.€€At€oral€argument,€the€CommissionerÐ D!” Ðexplained€that€ð ðACT€canððt€recognize€all€that€income€and€put€it€in€its€back€pocket€without€runningÐ 0"€  Ðit€through€ECA.€€ECA€is€making€some€money,€we€think,€but€we€donððt€know€ð!ð€which€would€increaseÐ #l! Ðthe€federal€basis,€which€would€close€the€gap.€€But€we€donððt€know.ððÐ $X" Ðà  àThe€lack€of€documentary€evidence€supporting€the€claimed€basis€differential€is€made€apparentÐ à%0!$ Ðby€the€testimony€of€CPA€Hoskins,€who€prepared€ACTððs€1996€F€&€E€returns.€€When€asked€how€he€Ð  Ì&"% Ðdetermined€the€amount€of€the€claimed€basis€differential€($1,923,890),€Hoskins€explained:Ð ° Ðà8  àQuestion:€What€does€[Schedule€U€on€ACTððs€amended€1996€F€&€E€return]€represent?ЈØÐ Ð  Ðà8  àà@\\$ìÐ Ð à*€€€€€*€€€€€*ˆÐ `° Ðà8  à[Hoskins]:€€Schedule€U,€that€is€the€accumulation€of€[ACTððs]€prior€net€operatingÐ 8 ˆ Ðlosses€for€the€state€ð"ð€Department€of€Revenue€losses€claimed€in€prior€periods€orÐ $ t Ðlosses€carried€over.Ð `Ð Ð  Ðà8  àQuestion:€And€thatððs€what€adds€to€your€184,199?Ðè 8 Ð Ð  Ðà8  à[Hoskins]:€Thatððs€correct.ÐÀ Ð Ð  Ðà8  àQuestion:€So€it€is€fair€to€say€that€you€subtracted€that€number€from€the€[$2,108,089]Ð ˜è  Ðto€come€up€with€the€[$1,923,890]?Ð„Ô Ð Ð  Ðà8  à[Hoskins]:€Exactly.Ð\¬Ð Ð  ÐThus,€Hoskins€admittedly€backed€in€the€$1,923,089€amount€to€allow€ACT€to€have€a€deduction€equalÐ 4„ Ðto€its€1996€consolidated€loss€carryover€($2,108,089).׃ ×Ý ƒ#ÃÝòòÚ  Ú14Ú  ÚóóÝ  Ý×  ×€€Hoskinsðð€notation€on€the€amended€F€&€E€taxÐ  p Ðreturn€explained,€ð ðThe€return€is€amended€to€reflect€the€previously€shown€net€operating€loss€carryoverÐ  \ Ðas€a€capital€loss€.€.€.€.€€The€federal€tax€return€reflects€the€consolidated€net€operating€loss€carryover.€Ð øH ÐThe€amended€return€results€in€no€change€in€the€tax€liability€as€shown€on€the€original€return.ðð€Ð ä4 ÐHoskins€asserted€that€the€issue€was€not€whether€ACT€was€entitled€to€a€deduction,€but€ð ðhow€it€shouldÐ Ð  Ðbe€reflected€on€the€tax€returns.ðð€€From€that€explanation,€it€is€clear€that€Hoskins€did€not€arrive€atÐ ¼  ÐACTððs€capital€loss€deduction€by€engaging€in€an€analysis€of€ACTððs€investments€and€ECAððs€income.€Ð ¨ø ÐNone€of€the€experts€who€testified€at€trial€justified€$1,923,089€as€the€appropriate€amount€of€the€basisÐ ”ä Ðdifferential.€€Indeed,€CPA€Brown€admitted€that€there€was€no€way€to€tell€whether€ACTððs€$2,108,089Ð €Ð Ðloss€carryover€was€attributable€to€ECA.€€The€Commissionerððs€expert€testified€that€a€capital€loss€isÐ l¼ Ðnormally€computed€by€reference€to€a€computation€in€the€tax€return€involving€the€cost€basis€and€bookÐ X ¨ Ðvalue€of€an€asset,€and€then€a€corresponding€gain€or€loss€from€the€disposition€of€that€asset.€€In€thisÐ D!” Ðcase,€there€was€no€such€computation.€€Therefore,€after€a€careful€review€of€the€testimony,€exhibits,Ð 0"€  Ðand€tax€records€in€the€appellate€record€in€this€case,€we€must€conclude€that€the€trial€court€did€not€errÐ #l! Ðin€finding€that€ACT€did€not€submit€sufficient€evidence€to€establish€that€it€was€entitled€to€the€basisÐ $X" Ðdifferential€deduction€of€$1,923,890€claimed€on€its€1996€F€&€E€tax€return.€€Ð ô$D # Ðà  àACT€raises€one€final€issue€for€our€review.€€ACT€argues€that,€even€if€the€basis€differentialÐ ° Ðdeduction€is€not€allowed,€the€trial€court€erred€in€failing€to€correct€a€mistake€in€the€CommissionerððsÐ œì Ðassessment.€€In€determining€the€assessment€amount,€the€Commissioner€permitted€ACT€to€deduct€itsÐ ˆØ Ðseparate€loss€carryover€($184,199)€from€its€taxable€income.€€In€calculating€that€amount€by€usingÐ tÄ Ðrecords€from€ACTððs€previous€years€of€operation,€however,€the€Commissioner€listed€ACT€as€havingÐ `° Ð$187,686€in€òòincomeóó€in€1990,€when€in€fact€ACT€had€reported€a€òòlossóó€of€$187,686€in€that€year.€€TheÐ L œ ÐCommissioner€readily€admits€that€she€erred€in€using€the€$187,686€income€in€calculating€the€1996Ð 8 ˆ Ðassessment€amount.€€However,€the€Commissioner€maintains€that,€the€$187,686€loss€to€which€ACTÐ $ t Ðrefers€was€ACTððs€òòconsolidatedóó€loss.€€Because€of€Tennesseeððs€separate€entity€rules,€ACTððs€òòseparateóóÐ  ` Ðincome€or€loss€should€have€been€used.€€A€breakdown€attached€to€the€1990€federal€return€showed€thatÐ ü L  ÐACT€actually€had€income€of€$295,469.€€Consequently,€if€the€error€were€to€be€corrected€properly,€theÐ è 8  ÐCommissioner€argues,€ACTððs€separate€income€of€$295,469€for€1990€would€be€utilized,€not€theÐ Ô$  Ðconsolidated€loss€of€$187,686,€as€argued€by€ACT.€€A€greater€amount€of€income€would€result€in€anÐ À  Ðeven€greater€assessment€against€ACT.€€Therefore,€the€Commissioner€argues,€the€mistake€about€whichÐ ¬ü  ÐACT€complains€was€harmless€error€to€ACT.Ð ˜è  Ðà  àThe€trial€court€made€no€findings€on€this€issue.€€From€our€review€of€the€record,€however,€weÐ pÀ Ðare€persuaded€that€the€Commissionerððs€position€on€this€issue€is€accurate.€€ACTððs€1990€federal€returnÐ \¬ Ðclearly€reflects€that€ACT€had€separate€income€of€$295,469€in€that€year.€€Therefore,€if€theÐ H˜ ÐCommissionerððs€mistake€were€properly€corrected,€the€result€would€be€a€decrease€in€available€lossÐ 4„ Ðcarryover,€which€would€mean€an€even€greater€assessment€to€ACT.€€Thus,€because€the€plain€recordÐ  p Ðshows€that€the€Commissionerððs€error€did€not€adversely€affect€ACT,€we€deem€it€to€be€harmless€error.Ð  \ Ðà  àWe€affirm€the€decision€of€the€trial€court.€€Costs€on€appeal€are€to€be€taxed€to€AppellantÐ ä4 ÐAmerican€Corrections€Transport,€Inc.,€and€its€surety,€for€which€execution€may€issue,€if€necessary.€Ð Ð  ÐÌÌÓ ÓÌà  àà ` àà ¸ àà  àà h àà À àà  à_________________________________Ð D!” Ðà  àà ` àà ¸ àà  àà h àà À àà  àHOLLY€M.€KIRBY,€JUDGEÓ! °,X›X°œX!ÓÐ 0"€  Ð