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During 1986, petitioner expected increased future revenues as a
result of the KCC infill drilling order and FERC Order 451.
Petitioner knew, at the time of the acquisition, that Tri-Power
had NOL's in excess of $84 million, and that amendments to
section 382, which were to become effective by the end of 1986,
would limit its ability to use Tri-Power's NOL's. Petitioner
commissioned an extensive investigation of Tri-Power's NOL's.
During the weeks leading up to the acquisition, petitioner's
management had regular discussions with Arthur Andersen
concerning its investigation of Tri-Power and its NOL's. Arthur
Andersen made a presentation to petitioner's management
concerning the potential use of Tri-Power's NOL's, and the NOL's
were discussed with petitioner's Board. Then, within days of the
acquisition, and before the end of 1986, petitioner transferred
its profitable oil and gas properties to Tri-Power, enabling it
to use Tri-Power's NOL's.
Petitioner admits and we agree that tax considerations
played a role in the acquisition and dropdown. The question,
however, is not whether tax considerations were present, but
whether those considerations were the principal purpose for the
acquisition of Tri-Power and the subsequent dropdown.
Primary Purpose for the Acquisition and Dropdown
After careful consideration of all of the facts and
circumstances surrounding the transactions in issue, we conclude
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