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Case 1:06-cv-00305-MBH Document 23-6 Filed 04/05/2007 Page 1 of 76

EXHIBIT 2

2375157.1

Case 1:06-cv-00305-MBH Document 23-6 Filed 04/05/2007 Page 2 of 76

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC.
& SUBSIDIARIES,






Plaintiff,


v.


THE UNITED STATES,


Defendant.

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No. 06-305 T
Judge Marian Blank Horn

REQUEST FOR INTERNATIONAL JUDICIAL ASSISTANCE PURSUANT TO THE

HAGUE CONVENTION OF 18 MARCH 1970 ON THE TAKING OF EVIDENCE

ABROAD IN CIVIL OR COMMERCIAL MATTERS

1.

Sender:

Requesting Judicial Authority

United States Court of Federal Claims
717 Madison Place, NW
Washington, DC 20005
United States of America

2.

Recipient:

Central Authority of England
The Senior Master of the Supreme Court of Judicature (Queen’s Bench Division)
Royal Courts of Justice
Strand
London WC2A 2LL, United Kingdom

3.

Person to Whom the Executed Request is to be Returned

David N. Geier
U.S. Department of Justice, Tax Division
555 4th St. NW
JCB Room 7919
Washington DC 20001

Case 1:06-cv-00305-MBH Document 23-6 Filed 04/05/2007 Page 3 of 76

IN CONFORMITY WITH ARTICLE 3 OF THE CONVENTION, THE UNDERSIGNED
APPLICANT HAS THE HONOR TO SUBMIT THE FOLLOWING REQUEST:

4.

Requesting Judicial Authority



United States Court of Federal Claims
717 Madison Place, NW
Washington, DC 20005
United States of America

5.

To the Competent Authority of the United Kingdom:

The Senior Master of the Supreme Court of Judicature (Queen’s Bench Division)
Royal Courts of Justice
Strand
London WC2A 2LL, United Kingdom

6.

Case Information:

Consolidated Edison Company of New York, Inc. & Subsidiaries v. The United States,
Case No. 06-305 T (U.S. Court of Federal Claims)

7.

Names and Addresses Parties and Their Representatives:

Plaintiff:

Consolidated Edison Company of New York, Inc. & Subsidiaries
(hereinafter collectively “Con Ed”)

Represented by:

Thomas C. Durham
Nicole Bielawski
MAYER, BROWN, ROWE & MAW LLP
71 South Wacker Dr.
Chicago, IL 60606

Defendant:

The United States of America

Represented by:

David Geier
Attorney of Record
U.S. Department of Justice, Tax Division
555 4th St. NW
JCB Room 7919
Washington, DC 20001
202-616-3448

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Eileen J. O’Connor

Assistant Attorney General

David Gustafson
Chief, Court of Federal Claims Section

Assistant Chief, Court of Federal Claims Section

Steven I. Frahm

Joseph A. Sergi

Trial Attorney

Trial Attorney

Trial Attorney

James E. Weaver

Adam R. Smart

U.S. Department of Justice, Tax Division

8.

Nature and Purpose of Proceedings and Summary of Facts

There is currently pending in the United States Court of Federal Claims a suit captioned

Consolidated Edison Company of New York, Inc. & Subsidiaries v. United States, No. 06-305 T,

in which the plaintiff, “Con Ed,” seeks a refund of federal income taxes paid to the United States.

The fundamental issue in a tax refund suit is whether the taxpayer can establish that it has overpaid

its taxes for the periods in suit. See Lewis v. Reynolds, 284 U.S. 281 (1932); Dysart v. United States,

169 Ct. Cl. 276, 340 F.2d 624 (1965). In this case, plaintiff participated in a lease-in/lease-out

("LILO") transaction involving a power station (the “RoCa3” facility owned by South Holland

Electric (N.V. Electriciteitsbedrifj Zuid-Holland) (hereinafter “EZH”)) located in the Netherlands.

The specific substantive issue raised in this refund suit is whether plaintiff is entitled to deductions

for rent, interest, and transaction costs in connection with the LILO to reduce its 1997 federal

income tax liability.

Because the counter-party to the LILO shelter, as well as third party consultants and banks

involved are located in foreign countries, including yours, the United States requests the assistance

of this Court to obtain discovery from foreign entities in its jurisdiction.

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The Transaction

The United States’ position is that Con Ed, a United States taxpayer, through a subsidiary,

purported to lease property from its owner, EZH, under a head lease and simultaneously purported

to lease the property back to EZH under a sublease. As is typical in a LILO transaction, the counter-

party, EZH, is a foreign entity that pays no taxes in the United States. EZH is unable to claim

federal income tax benefits, like depreciation, associated with its ownership of the RoCa3 facility.

Immediately after the transaction was entered into, and continuing to date, EZH or its successors

(including E.On Benelux Generation N.V., a subsidiary of E.On Energie A.G.) have continued to

operate the facility and have retained all of the benefits and burdens associated with its use and

ownership. For its part, Con Ed claimed rent and interest deductions associated with the purported

head lease.

According to the LILO documents provided to the United States by Con Ed, the United

States contends that (1) a foreign bank, Hollandsche Bank-Unie N.V. (“HBU”) purported to make

a non-recourse loan to Con Ed to finance the head lease payments, (2) EZH’s sublease rent payments

are essentially identical in timing and amount to Con Ed’s loan payments, (3) the loan proceeds were

not paid to EZH but rather were held by ABN AMRO Bank N.V. (“ABN AMRO”), the parent bank

of HBU, and used to satisfy the identical owner rent payments from EZH and Con Ed’s purported

loan repayments to HBU. Further, other financial entities, such as Credit Suisse Financial Products,

Credit Suisse First Boston (collectively “Credit Suisse”), and Bayerische Landesbank A.G., were

also involved in the financing aspects of the LILO shelter transaction. The circular financing

arrangement among Con Ed, EZH and the foreign banks virtually ensured that (1) neither Con Ed

nor EZH will need to use their own funds to satisfy their respective obligations under the operative

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documents (save for the fees and other costs paid by the taxpayer in connection with the

transaction); and (2) EZH will retain dominion and control over the subject property.

It is the United States’ position that the tax deductions and losses claimed by Con Ed in

connection with the LILO shelter transaction are improper and that Con Ed will not be able to prove

it is entitled to a refund because:













Con Ed did not acquire a genuine leasehold interest in property in 1997 when it
participated in the LILO;

Con Ed did not incur a genuine debt obligation in connection with the LILO;

The LILO tax shelter transaction and components thereof lacked economic substance
and/or constitute a sham;

The tax deductions fail when the step transaction doctrine is applied and the steps
which comprise the tax shelter are collapsed and then viewed as a single transaction;

Con Ed is not entitled to an interest expense deduction with respect to its
"non-recourse loan," because such loan does not result in a use of the loan proceeds
by Con Ed nor does it constitute a true forbearance by the lender; and

The LILO shelter here at issue creates, at most, a contingent future leasehold interest
not entitling Con Ed to any present deductions on account thereof.

In short, the United States contends that other than the execution of paper and the payment of fees,

nothing happens.

The United States has requested information about this LILO transaction from Con Ed

directly. Con Ed has represented that information about the LILO transaction is held by third parties

involved in the LILO transaction, some of whom are identified in this Letter of Request. The

information being sought goes to the substance and operation of the LILO transaction at issue in the

instant case, including, among other things, the financing arrangement, the counter-party’s treatment

of the transaction, and any due diligence performed in anticipation of the transaction.

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This Court considers that it is necessary in the interest of justice that documentary evidence

be obtained for use at trial in this case from several of the LILO transaction participants or their

successors in interest, namely Credit Suisse Financial Products, Credit Suisse First Boston, and

Standard & Poor’s, or their respective successors in interest.

9.

Evidence to Be Obtained or Other Judicial Act to Be Performed

a.

Credit Suisse Financial Products

This Court respectfully requests that Credit Suisse Financial Products, whose business

address is 1 Cabot Sq., 4th Floor, London, E14 4QJ, The United Kingdom, be requested to produce

the documents identified in Exhibit A attached hereto, copies of which should be provided to the

attorneys for the parties to this litigation.

b.

Credit Suisse First Boston Ltd.

This Court respectfully requests that Credit Suisse First Boston Ltd., whose business address

is 1 Cabot Sq., 4th Floor, London, E14 4QJ, The United Kingdom, be requested to produce the

documents identified in Exhibit B attached hereto, copies of which should be provided to the

attorneys for the parties to this litigation.

c.

Standard & Poor’s

This Court respectfully requests that Standard & Poor’s, whose business address is Garden

House, 18 Finsbury Circus, London, EC2M 7BP, The United Kingdom, be requested to produce the

documents identified in Exhibit C attached hereto, copies of which should be provided to the

attorneys for the parties to this litigation.

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10. Procedural Requests

This Court respectfully requests that counsel for plaintiff and defendant identified above be

notified of the time and place of the execution or executions of the Request, and that attendance by

representatives of the parties be permitted at such execution or executions. In the event that the

evidence sought cannot be taken in the manner requested, it is to be taken in the manner as provided

by local law.

11.

Reimbursement:

The United States is prepared to reimburse your Court for all costs incurred in executing

the instant request.

The courts of the United States are authorized by law to extend similar assistance to the

tribunals of the United Kingdom and will gladly reciprocate the courtesies shown by the courts of

the United Kingdom. The Court extends to the judicial authorities of the United Kingdom the

assurances of its highest considerations.

____________________________________
MARIAN BLANK HORN
Judge United States Court of Federal Claims

Dated: __________________________

SEAL

________________________________

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EXHIBIT A

2375189.1

Case 1:06-cv-00305-MBH Document 23-6 Filed 04/05/2007 Page 10 of 76

EXHIBIT A

DOCUMENTS TO BE PRODUCED BY CREDIT SUISSE FINANCIAL PRODUCTS

DEFINITIONS & INSTRUCTIONS

A.

“Document,” “record” and “material” include any written, printed, typed, electronic
or graphic matter of any kind or nature. Any draft or non-identical copy constitutes a separate
document for purposes of these requests. The terms shall be construed to include, but shall not be
limited to, correspondence, electronic mail, notes, notations, contracts, brochures, agreements,
deeds, leases, letters, memoranda, checks, bank statements, reports, analyses, projections, studies,
records, corporate minutes, financial statements, financial records, accounting or audit workpapers
(including permanent workpapers), spreadsheets, transcripts, recordings, and all other types of
written or documentary materials.

B.

Any copy of a document that varies in any way from the original or from any other
copy of the document, whether by reason of handwritten or other notation or any omission, shall
constitute a separate document and must be produced. Each document is to be produced in its
entirety, without abbreviation or expurgation, and the person who made the notation identified.

C.

If any documents are withheld under a claim of privilege, furnish a list identifying
each document for which a privilege is claimed, together with the following information and
sufficient details so as to permit a court to adjudicate the validity of the claim of privilege: date,
sender, recipient, type (e.g., letter, memorandum, telegram, chart, photograph, etc.), subject matter
of the document, the basis on which a privilege is claimed, and the paragraph or paragraphs of this
request to which the document responds.

D.

If any document that would have been responsive to these requests no longer exists,
please state the following for each document: the date of destruction, the reason for destruction, and
the person(s) responsible for the decision to destroy the document(s) and for the actual destruction
of the documents.

E.

Responses to these requests should be made in a manner consistent with Fed. R. Evid.

902(12), Certified Foreign Records of Regularly Conducted Activity.

F.

The term “Con Ed” shall refer to Consolidated Edison Company of New York, Inc.
& Subsidiaries, and affiliated companies, including, but not limited to, Consolidated Edison
Development, Inc., Consolidated Edison Leasing, Inc., and Consolidated Edison, Inc.

Case 1:06-cv-00305-MBH Document 23-6 Filed 04/05/2007 Page 11 of 76

G.

The term “Banc One” shall refer to Banc One Leasing Corp. its related affiliates,
subsidiaries, successors, and assigns, including, but not limited to, and any person, officer, director,
accountant, lawyer, agent, or entity acting on behalf of any of the foregoing organizations.

H.

The term “EZH” shall refer to N.V. Electriciteitsbedrifj Zuid-Holland, its related
affiliates, subsidiaries, successors, and assigns, including, but not limited to, Preussen Elektra A.G.
and E.ON Benelux Generation N.V., and any person, officer, director, accountant, lawyer, agent,
or entity acting on behalf of any of the foregoing organizations.

I.

The term “RoCa3” shall refer to the gas fired CHP facility located in the Netherlands
on the border between Rotterdam and Capelle aan den IJessel, constituting the third unit alongside
two previously built units, which was owned by EZH on or about December 15, 1997.

J.

The term “HBU” shall refer to Hollandsche Bank-Unie N.V., its related affiliates,
subsidiaries, successors, and assigns, and any person, officer, director, accountant, lawyer, agent,
or entity acting on behalf of any of the foregoing organizations.

K.

The term “ABN AMRO” shall refer to ABN AMRO Bank N.V., its related affiliates,
subsidiaries, successors, and assigns, and any person, officer, director, accountant, lawyer, agent,
or entity acting on behalf of any of the foregoing organizations.

L.

The term “Tauw” shall refer to Tauw Milieu B.V., its related affiliates, subsidiaries,
successors, and assigns, including, but not limited to, Tauw B.V., and any person, officer, director,
accountant, lawyer, agent, or entity acting on behalf of any of the foregoing organizations.

M.

The term “CSFP” shall refer to Credit Suisse Financial Products, its related affiliates,
subsidiaries, successors, and assigns, and any person, officer, director, accountant, lawyer, agent,
or entity acting on behalf of any of the foregoing organizations.

N.

The term “Lease Transaction” shall refer to the series of transactions pertaining to
the RoCa3 facility as described in paragraphs 61-77, inclusive of the complaint attached hereto as
Exhibit A-1.

O.

The term “Lease Transaction Participants” refers to the following entities: ABN
AMRO Bank N.V.; Hollandsche Bank-Unie N.V.; EZH; Con Ed; Credit Suisse; Bayerische
Landesbank; Wilmington Trust Co.; ABB Leasing GmbH, and any and all affiliated businesses,
successors, assigns, predecessor or successor businesses, and any person, officer, director,
accountant, lawyer, agent, or entity acting on behalf of any of the foregoing organizations.

Exhibit A

2

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P.

The term “Capstar” refers to Capstar Partners L.L.C., its related affiliates,
subsidiaries, successors, and assigns, and any person, officer, director, member, accountant, lawyer,
agent, or entity acting on behalf of any of the foregoing organizations.

Q.

The term “Cornerstone” refers to Cornerstone Financial Advisors L.P., its related
affiliates, subsidiaries, successors, and assigns, and any person, officer, partner, accountant, lawyer,
agent, or entity acting on behalf of any of the foregoing organizations.

DOCUMENTS TO BE PRODUCED

1.

The documents in the files of CSFP that discuss the Lease Transaction.

The documents in the files of CSFP that discuss or pertain to its solicitation as a

potential participant in the Lease Transaction.

2.

3.

Lease Transaction.

The documents in the files of CSFP that discuss CSFP’s decision to participate in the

4.

The documents in the files of CSFP that contain the analyses made in conjunction

with the decision to participate in the Lease Transaction.

5.

The documents in the files of CSFP that discuss the negotiations performed with
respect to CSFP’s role in the Lease Transaction or the purchase or issuance of US treasury strips in
connection therewith.

6.

The documents in the files of CSFP that describe or discuss the lease options the
Lease Transaction provides to Con Ed and/or EZH, including documents that address the feasibility
and/or likelihood of exercise of those options.

7.

The documents in the files of CSFP discussing any negotiations performed with

respect to the terms of the Lease Transaction.

8.

The documents in the files of CSFP evidencing the transfer of any funds by or to any
of the Lease Transaction Participants in connection with the Lease Transaction or the purchase of
US Treasury strips in connection therewith.

Exhibit A

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9.

The documents in the files of CSFP containing or discussing Credit Suisse’s analysis
of appropriate market rates for the various loans, debt defeasance deposits, and collateral
purportedly used in the Lease Transaction as identified in the correspondence Bates Nos. PF006130-
31, PF006132-33, PF006134-35, PF006136-37, and PF006138-39, attached hereto as Exhibits A-2,
A-3, A-4, A-5, and A-6 respectively, including, but not limited to, how the percentage rates set forth
in each of those documents was selected.

10.

The drafts and underlying work papers for the opinion letters referred to in paragraph

9 in the files of CSFP.

COMMUNICATIONS

11.

The letters, memoranda, notes, e-mails, and other written communication in the

files of CSFP exchanged by and/or between CSFP and any of the Lease Transaction Participants
(or their affiliates, assigns, or successors in interest) in connection with the Lease Transaction or
the US Treasury Strips purchased or issued in connection therewith.

12.

The letters, memoranda, notes, e-mails, and other written communication in the

files of CSFP exchanged by and/or between CSFP and Capstar in connection with the Lease
Transaction or the US Treasury Strips purchased or issued in connection therewith.

13.

The letters, memoranda, notes, e-mails, and other written communication in the

files of CSFP exchanged by and/or between CSFP and Cornerstone in connection with the Lease
Transaction or the US Treasury Strips purchased or issued in connection therewith.

14.

The letters, memoranda, notes, e-mails, and other written communication in the
files of CSFP exchanged by and/or between CSFP and Banc One in connection with the lease
transaction between Banc One and EZH for the undivided interest in the RoCa3 facility not
involved in the Lease Transaction, or the US Treasury Strips purchased or issued in connection
therewith.

ACCOUNT INFORMATION

15.

The documents in the files of CSFP discussing or referring to Account Number

2F4A2, as referred to in Bates Nos. PF002841-2843, attached hereto as Exhibit A-7, as it related
to the Lease Transaction.

Exhibit A

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TREASURY STRIPS

16.

The documents in the files of CSFP discussing or pertaining to the following US
treasury strip coupons identified in documents identified as Bates Nos. US01835, US01836, and
US01837-US01840, attached hereto as Exhibits A-8, A-9, and A-10:

US treasury strip coupons 11/15/2011, CUSIP 912833JX9;
US treasury strip coupon 11/15/2016, CUSIP 912833KK5;
US treasury strip coupon 2/15/2017, CUSIP 912833KL3;
US treasury strip coupon 5/15/2017, CUSIP 912833KM1;
US treasury strip coupon 8/15/2017, CUSIP 912833KN9;
US treasury strip coupon 2/15/2018, CUSIP 912833KQ2;
US treasury strip coupon 5/15/2018, CUSIP 912833KRO;
US treasury strip coupon 8/15/2018, CUSIP 912833KS8; and
US treasury strip coupon 11/15/2018, CUSIP 912833KT6,

including, but not limited to all documents pertaining to the purchase, issuance, and ownership
of the treasury strips, the specific maturity dates, amounts, and percentages selected for each
treasury strip, and the role of the treasury strips in the Lease Transaction and/or any substantially
similar transaction involving the RoCa3 facility to which Banc One was a party.

17.

The documents in the files of CSFP discussing or pertaining to the account or

accounts containing the US treasury strip coupons identified in paragraph 16

SIMILAR TRANSACTIONS

18.

The documents within the files of CSFP that discuss or pertain to any of the
following lease transactions considered by the plaintiff, Con Ed, between 1997 and 2001,
including the documents discussing the solicitation of CSFP as a potential participant in such a
transaction and the documents reflecting CSFP’s consideration of such transactions and decision
to participate in such transactions:

a.
b.
c.
d.

NUON lease (Netherlands);
MEGA Gas and Thermal Distribution lease/leaseback (Netherlands);
EPON lease (Netherlands);
ENECO lease (Netherlands);

Exhibit A

5

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e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.
t.
u.
v.

ENN lease (Nethelands);
ENW gas lease (Netherlands);
MCN lease (United States);
ELECTRABEL power plant lease/leaseback (Belgium);
Diefland gas and thermal distribution lease/leaseback (Netherlands);
Linz power plant lease/leaseback (Austria);
UNA power plant lease/leaseback (Netherlands);
EG Laufenburg lease/leaseback (Switzerland);
Humber power lease/leaseback (United Kingdom);
EWZ electric transmission grid lease/leaseback (Switzerland);
ESAG lease (Germany);
REMU lease (Netherlands);
DELTA lease (Netherlands);
ZETA/TEL lease (Netherlands);
EDON lease (Netherlands);
DEW lease (Germany);
VASA lease (Germany); and
SWISCO lease (Switzerland).

19.

The documents in the files of CSFP that discuss any other transaction similar to

the Lease Transaction and/or the transaction described in Revenue Ruling 2002-69, 2002-2 C.B.
760 (copy attached hereto as Exhibit A-11), from 1996 through 2001, including the documents
discussing the solicitation of CSFP as a potential participant in such a transaction and the
documents reflecting CSFP’s consideration of such transactions and decision to participate in
such transactions.

CONTINUING COMMUNICATIONS

20.

The letters, memoranda, notes, e-mails, and other written communication in the
files of CSFP exchanged by and/or between CSFP and E.On Benelux Generation N.V., E.On
Energie A.G., EZH, Wilmington Trust Company or representatives thereof, discussing the

Exhibit A

6

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acquisition of EZH by Preussen Elektra AG in connection with the Lease Transaction or the US
treasury strip coupons identified in paragraph 16 above.

Exhibit A

7

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EXHIBIT A-1

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

CONSOLIDATED EDISON COMPANY

OF NEW YORK, INC. &
SUBSIDIARIES,

Plaintiff,

v.

THE UNITED STATES,

Defendant.

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FILED APR 19 -

t06-305 T

,i' No.

COMPLAINT

Plaintiff, Consolidated Edison Company of New York, Inc. & Subsidiaries, brings this

action for a refund of federal taxes paid in connection with the Internal Revenue Service's

proposed adjustments to its federal tax return for the taxable year ending December 31, 1997,

The adjustments ar related to Plaintiffs investment in an electric generation facility located

outside Rotterdam, The Netherlands.

In support of its refund claim, Plaintiff alleges as follows:

JUSDICTION AND SUMRY OF ACTION

I. Plaintiff, Consolidated Edison Company of New York, Inc. & Subsidiares ("Con

Edison NY"), brings this refund

action, founded upon the Internal Revenue Code of 1986, for the

recovery of federal income tax paid by Plaintiff for the taxable year ended December 31, 1997

("the 1997 taxable year").

2. Defendant is the United States of America.

3. This Court has jursdiction by reason of 28 U.S.C. §§ l346a)(l) and 1491(a)(I)

and 26 U.S.c. § 7422.

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4. On or before September 9, 1998, Con Edison NY filed a timely federal

consolidated income tax return for the 1997 taxable year with the Internal Revenue Service

("RS") and timely paid income taxes in the amount of $291,003,408.

5. Con Edison NY's name, address, and identification number appearng on the

1997 tax return ar: Consolidated Edison Company of New York, Inc. & Subsidiares; 4 Irving

Place, Room 615-S, New York, New York, 10003; and 13-5009340, respectively.

6. During the 1997 taxable year, Con Edison NY, through its subsidiares, made an

investment in an electric generation plant in The Netherlands. The plant is generally known as

"RoCa3" and is owned by N.V. Electriciteitsbedrijf Zuid-Holland ("South Holland Electric").

This transaction is hereinafter referred to as the "RoCa3 Investment."

7. On its 1997 tax return, Con Edison NY reported rental income with respect to the

RoCa3 Investment and deducted rental expense, amortization of expenses, and interest expense

.

relating to the property and indebtedness incurred in the RoCa3 Investment, for a net loss of

$937,331.

8. The IRS, during a routine audit of Con Edison NY's tax return for the 1997

taxable year, disputed Con Edison NY's tax treatment of the RoCa3 Investment.

9. On or about September 15,2005, the IRS issued a Notice of Prposed Adjustment

to Con Edison NY, proposing additional federal income of $937,331 for the 1997 taable year

with respect to the RoCa3 Investment.

10. The IRS's proposed adjustments resulted in a tax increase of $328,066, increasing

Con Edison NY's federal income tax liability for the 1997 taxable year from $291,003,408 to

$291,331,474.

2

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