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(1) A corporation or other business enterprise (or the
interest controlling such corporation or enterprise) with
large profits acquires control of a corporation with
current, past, or prospective credits, deductions, net
operating losses, or other allowances and the acquisition is
followed by such transfers or other action as is necessary
to bring the deduction, credit, or other allowance into
conjunction with the income. * * *
* * * * * * *
(2) A subsidiary corporation, which has sustained
large net operating losses in the operation of business X
and which has filed separate returns for the taxable years
in which the losses were sustained, acquires high earning
assets, comprising business Y, from its parent corporation.
The acquisition occurs at a time when the parent would not
succeed to the net operating loss carryovers of the
subsidiary if the subsidiary were liquidated, and the
profits of business Y are sufficient to offset a substantial
portion of the net operating loss carryovers attributable to
business X * * *.
Respondent contends that these regulations perfectly
describe petitioner's acquisition of Tri-Power and subsequent
transfer of its oil and gas properties to Tri-Power. The
acquisition and subsequent dropdown do arguably fall within the
cited examples and might "ordinarily", absent contrary evidence,
lead to the conclusion that a tax avoidance purpose exists. In
the instant case, however, additional evidence to the contrary
exists, and that evidence indicates that business considerations,
not evasion or avoidance of Federal income tax, were the
principal purpose for the transactions in issue.
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