Farmland Industries, Inc. - Page 59




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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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