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preparing their Federal corporate income tax returns. Arthur
Andersen had access to all of petitioners' books and records.
Petitioner also relied on Arthur Andersen for tax advice in
connection with the acquisition of Tri-Power, including the
proper treatment of the NOL's in issue in the instant case. As
discussed supra, Arthur Andersen conducted an extensive
investigation into the tax issues surrounding the acquisition,
and based, in part, on petitioner's representations29 issued an
opinion concerning the proper tax treatment.
OPINION
I. Principal Purpose for the Acquisition and Dropdown
The first issue we must decide is whether petitioner is
entitled to carry over and deduct the NOL's incurred by Tri-Power
before the acquisition and dropdown. Respondent contends that
petitioner is not entitled to the benefit of the NOL deductions
because petitioner's principal purpose for the acquisition and
subsequent dropdown was the evasion or avoidance of Federal
income tax. Petitioner contends that the acquisition and
subsequent dropdown were not occasioned primarily by the desire
to obtain tax losses but, instead, by business considerations.
Section 269(a) provides that if a corporation (or, in
certain situations, its property) is acquired for the principal
29 See supra note 22.
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