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properties to Tri-Power pursuant to a preexisting plan to adopt a
holding company structure, a structure commonly used in the oil
and gas business. Long before it knew about Tri-Power or its
NOL's, petitioner decided to adopt a holding company structure to
aid its business operations and acquisition efforts. Petitioner
long held the belief that an operating subsidiary would provide
it with greater flexibility to make acquisitions and protection
against hostile takeover attempts. Accordingly, petitioner's
plan to adopt a holding company structure was, from the
beginning, an integral part of its reserve acquisition and
hostile takeover defense strategy. On the basis of the extensive
evidence in the record in the instant case, we conclude that the
dropdown served valid business purposes aside from facilitating
petitioner's use of Tri-Power's NOL's.
Tax Considerations
Petitioners have demonstrated legitimate business purposes
for petitioner's acquisition of Tri-Power and the subsequent
transfer of petitioner's oil and gas properties to Tri-Power.
Respondent contends, however, that the circumstances surrounding
the acquisition and dropdown demonstrate that tax considerations,
not business considerations, were petitioner's primary motive.
Respondent contends that petitioner was a profitable oil and gas
company that set out to acquire a loss corporation to provide
NOL's to offset its income. Respondent points to several facts.
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