H Enterprises International, Inc., and Subsidiaries - Page 14

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          IV.  Discussion                                                             
               In H Enterprises I, we held that, in appropriate                       
          circumstances, sections 246A and 265(a) may be applied when one             
          member of an affiliated group is the borrower and another member            
          is the purchaser of the portfolio stock or tax-exempt securities.           
          H Enterprises I at 81.  Implicit in that holding is the                     
          recognition that the search for a prohibited purpose cannot be              
          focused exclusively on the subsidiary’s purpose in borrowing to             
          make a distribution.  Generally, a distributing corporation has             
          no control over (or concern with) the use to which distributions            
          are put by the shareholder recipient.  If we were to limit our              
          inquiry to whether the board of directors of a subsidiary                   
          corporation borrowed to make a distribution to its parent and               
          whether the subsidiary used the borrowed funds for that purpose,            
          then the use of the distributed funds would be irrelevant and the           
          purpose of the distributing corporation would always be                     
          acceptable.  We, therefore, reject petitioner's argument that we            
          should look only to Waldorf II's purpose for incurring the 1987             
          indebtedness, and we direct our inquiry to the larger purposes of           
          HEI manifest by the actions of both Waldorf II and HEI.                     
               Here, Waldorf II incurred the 1987 indebtedness, at least in           
          part, in order to make the distribution.  Coincident, or nearly             
          coincident, events may indicate purpose:  “[T]he deduction will             
          be barred if there is ‘a sufficiently direct relationship’                  
          between the incurring or continuing of the indebtedness and the             



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