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NOL's. It is well settled, however, that taxpayers are free to
arrange their business affairs so to as to minimize tax. See
Gregory v. Helvering, 293 U.S. 465 (1935); Ach v. Commissioner,
358 F.2d 342 (6th Cir. 1966), affg. 42 T.C. 114 (1964);
Briarcliff Candy Corp. v. Commissioner, T.C. Memo. 1987-487.
Accordingly, we do not believe that the dropdown, by itself,
evinces a principal purpose to evade or avoid Federal income tax.
Moreover, we do not believe that the dropdown taints the overall
plan of acquisition.
All of the factors discussed above are inconsistent with
respondent's contention that the acquisition and dropdown were
undertaken for the principal purpose of acquiring tax losses. To
the contrary, both transactions were undertaken pursuant to
petitioner's preexisting plans to acquire replacement reserves,
diversify, and adopt a holding company structure. Accordingly,
we conclude that, while tax factors were taken into
consideration, tax avoidance was not the principal purpose for
the acquisition and dropdown.
Respondent's Arguments
Although we are not persuaded that tax avoidance was the
primary motivation for the acquisition and dropdown, we shall
briefly discuss some of respondent's arguments to the contrary.
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