- 48 -
D'Arcy-MacManus & Masius, Inc. v. Commissioner, supra at 449;
sec. 1.269-3(a), Income Tax Regs. We must look to the intent or
purpose of the acquiring person or corporation at the time of the
acquisition. See Southern Dredging Corp. v. Commissioner, 54
T.C. 705, 718 (1970). As the acquisition and dropdown were
integral steps in petitioner's plan to acquire Tri-Power, we
shall consider the overall plan of acquisition to determine
whether tax avoidance was the primary purpose.
Business Considerations
Petitioner contends that it acquired Tri-Power principally
to replace its reserves and diversify its operations; that it
transferred its oil and gas properties to Tri-Power principally
to aid its business operations and acquisition efforts; and that
the acquisition of Tri-Power and subsequent transfer of its oil
and gas properties to Tri-Power were motivated principally by
business considerations.
Respondent does not challenge petitioner's need for
diversification but contends that petitioner greatly exaggerates
the need for replacement reserves during 1986. Respondent points
out that during 1986 petitioner's gas reserves were projected to
last for approximately 25 years and that, as a result of the KCC
infill drilling order, petitioner expected to increase its proven
natural gas reserves by approximately 31 percent. Accordingly,
respondent contends that petitioner had no immediate need for
Page: Previous 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 NextLast modified: May 25, 2011