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CRA was merged into petitioner in July 1982.
Petitioner has owned and operated all of CRA’s refineries
since that time. Until it merged into petitioner, CRA
always filed a separate Federal income tax return. After
the merger, petitioner maintained inventories of crude
oil and refined petroleum products.
From the beginning, petitioner’s management has sought
to vertically integrate its petroleum business. In
particular, petitioner has sought to conduct its own
exploration, drilling, and production of crude oil and
natural gas, refining and wholesale marketing of petroleum
products, and the associated gathering, transportation,
and distribution of raw materials and refined petroleum
products. Petitioner’s primary objectives in this regard
were to secure a dependable and consistent supply of crude
oil for its refineries, to provide its patrons with a full
range of high quality petroleum products in an economically
efficient manner, to maximize the economic benefits to its
patrons, and to reduce its patrons’ dependence on profit-
seeking oil companies.
Vertical integration in the petroleum production
business creates several business risks. Oil exploration
and production activities generally require substantial
capital investment with no guaranty that exploration will
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