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Earlier that year, on July 25, 1985, the board of directors
of LOF approved the transfer of the glass business to a wholly
owned subsidiary for valid business reasons. On February 19,
1986, LOF Glass, Inc. was incorporated as a wholly owned
subsidiary of LOF. On March 6, 1986, a "Transfer and Assumption
Agreement", amended on April 25, 1986, transferred to LOF Glass,
Inc., all assets associated with the LOF Glass Division,
including inventories and receivables, effective retroactively to
February 19, 1986. These assets also included section 38 assets
upon which LOF had previously claimed ITCs. Petitioner took no
formal action contemplating the liquidation of LOF Glass, Inc.,
in the event that the acquisition by Pilkington did not take
place.
On March 7, 1986, LOF, Pilkington, and Pilkington Holdings
entered into an agreement, amended on April 28, 1986, whereby LOF
would transfer all of its shares of LOF Glass, Inc., to
Pilkington Holdings in exchange for all of the shares of
petitioner held by Pilkington Holdings. On April 28, 1986,
Pilkington Holdings exchanged 4,064,550 shares of LOF for the
shares of LOF Glass, Inc. LOF Glass, Inc., continued to operate
the glass business as a subsidiary of Pilkington Holdings and
used the section 38 assets in its trade or business.
The parties have stipulated that petitioner recognized no
gain or loss upon the transaction whereby its glass business was
transferred to LOF Glass, Inc., pursuant to the provisions of
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