- 38 -
that point.”14 Further, petitioner decided to invest MFE’s funds
in WFNNB before MFE N.V. was organized. Whether MFE N.V. was
organized for asset protection purposes we need not say. We do
believe, however, that that was not the sole purpose of
organizing MFE N.V. We believe that a principal purpose of
organizing and funding MFE N.V. was to avoid having the $174.9
million capital contribution result in subpart F income pursuant
to section 956. Further, we believe that another principal
purpose was to limit any subpart F income imposed pursuant to
section 956 to MFE N.V.'s earnings and profits, which were
negligible. Thus, we find that a principal purpose for creating,
organizing, and funding MFE N.V. to purchase the MFE N.V. CDs,
rather than using a domestic corporation or having MFE purchase
the CDs directly, was to avoid the application of section 956.
Mr. Lyon's testimony supports that conclusion. Accordingly, the
MFE N.V. CDs are attributed to MFE pursuant to section 1.956-
1T(b)(4), Temporary Income Tax Regs., supra.
G. Conclusions
At the close of 1993, MFE held the MFE N.V. CDs. The MFE
N.V. CDs were U.S. property and not section 956 deposits.
14 It is possible that Mr. Lyon's concern related to sec.
956(b)(1)(B), pursuant to which MFE's increase in earnings
invested in the stock of a domestic corporation would have
resulted in subpart F income to petitioner to the extent of such
increase.
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