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that the business considerations were the principal purpose for
the acquisition and dropdown. Several factors support our
conclusion.
Initially, we give great weight to the fact that petitioner
purchased Tri-Power pursuant to a preexisting plan to replace its
reserves and diversify its operations through acquisition.
Petitioner's acquisition policy, established shortly after its
spinoff from KN Energy, is corroborated by contemporaneous public
announcements. Beginning with its first shareholder report, the
1985 third quarter report, and continuing with every report
thereafter, petitioner publicly and repeatedly committed itself
to a program of reserve replacement and diversification through
acquisition. Accordingly, petitioner established its acquisition
policy long before it ever knew about Tri-Power or its NOL's.
Petitioner's formally documented policy of expansion and
diversification through acquisition rather than through internal
growth tends to establish a non-tax-avoidance motive. See, e.g.,
U.S. Shelter Corp. v. United States, 13 Cl. Ct. 606, 624 (1987).
We also consider petitioner's actions leading up to and
following the acquisition and dropdown. See D'Arcy-MacManus &
Masius, Inc. v. Commissioner, 63 T.C. at 451. After forming an
in-house acquisition screening team, petitioner's management
adopted specific acquisition limitations. Petitioner sought
targets with significant oil and gas reserves. Petitioner
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