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Moreover, Terra’s operations presented a potential conflict
of interest between petitioner and Terra’s other share-
holders. Petitioner preferred that Terra use all of its
earnings to finance additional crude oil exploration
activities. However, if the public shareholders were to
receive a return on their investment, some of those
earnings would have to be distributed as dividends. During
the time that Terra had minority shareholders, it did not
pay any dividends, and petitioner did not intend that it do
so.
In 1976, petitioner and CRA purchased all of the
publicly held capital stock in Terra for $31 per share.
This price was based on the appraised value of Terra’s
assets, and on a fairness opinion prepared by Smith, Barney
& Co. Petitioner owned all of Terra’s outstanding stock
from the date of the repurchase until July 1983 when it
sold its entire interest in the company.
Petitioner maintained control over Terra from the
time of its formation until 1983. Most of Terra’s
directors were also officers or directors of petitioner.
Terra’s president attended regular staff meetings held
by petitioner’s vice president in charge of petroleum
activities. Pursuant to resolutions adopted by
petitioner’s board of directors during its March 31-
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