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adopting a holding company structure for petitioner. By the
summer of 1986, management concluded that a holding company
structure would be the best structure for petitioner because it
would offer petitioner greater flexibility in making acquisitions
and in addressing shareholders and others with hostile
intentions. Petitioner initially contemplated using one
operating subsidiary. Petitioner contemplated that the Brock
Exploration acquisition would be the vehicle for establishing the
preferred holding company structure. Mr. Brock was interested in
a stock transaction, the result of which would have been that
Brock Exploration would have become a wholly owned subsidiary of
petitioner, facilitating management's plan to adopt a holding
company structure.
As the Brock Exploration transaction progressed into the
summer of 1986, Mr. Jackson asked Paul Hocevar of Arthur Andersen
& Co. (Arthur Andersen) to determine the tax consequences to
petitioner if it transferred its oil and gas properties to a
subsidiary. By memorandum dated June 25, 1986, Arthur
Andersen transmitted a "discussion draft" memorandum that
concluded favorable tax consequences would flow if petitioner
formed a subsidiary and made an installment sale of its assets to
the subsidiary. Arthur Andersen suggested this plan partially in
response to management's concern about the possibility of a
hostile takeover attempt. It was believed that the installment
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