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During fiscal 1984, the Seaway Pipeline Co.
sold its Freeport, Tex., to Cushing, Okla., crude
oil pipeline. Seaway was organized in the mid-
70s to transport foreign crude oil from the Texas
Gulf Coast to Midwest refineries. Farmland was a
12% owner of the Seaway facilities. With less
need for foreign crude oil in the Midwest, the
pipeline was no longer beneficial to Farmland’s
refining operations.
The sale of the pipeline was closed on May 1, 1984.
Following the closing, Seaway's shareholders agreed to make
short-term loans to Seaway of up to $15 million to cover
operating expenses pending dissolution. Seaway was to
repay these loans with the proceeds of the sale of the
terminal facilities. In total, the shareholders lent
Seaway $11,100,000. Petitioner's share of this loan was
$1,332,000.
The sale of terminal facilities closed in July and
August 1984. Seaway ceased conducting business on
August 31, 1984. Seaway used the proceeds from the sales
of the pipeline and terminal facilities to repay its
remaining debts to nonshareholders, the full amount of the
short-term loans made by the shareholders, a portion of the
shareholders' unapplied prepaid transportation charges, and
the shareholders' respective shares of the cost of oil
remaining in the pipeline at the time it was sold.
On its 1984 Federal income tax return, petitioner
reported an ordinary patronage loss from the Seaway
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