- 68 -
Circumvention of the Consolidated Return Regulations
Finally, respondent contends that, through the dropdown,
petitioners sought to circumvent the separate return year
limitation rules in the consolidated return regulations.
Pursuant to section 1.1502-21A(c), Income Tax Regs., pre-
acquisition losses can be carried forward and used on the
consolidated return only to the extent that the corporation that
incurred the losses has current income reflected on the
consolidated return. Respondent contends that the dropdown
renders this limitation meaningless, and that section 269 should
be applied to avoid frustration of the regulation's purpose.
The application of section 269, however, requires a finding that
the primary purpose for the acquisition was to evade or avoid
Federal income tax by securing the benefit of a deduction,
credit, or other allowance. We concluded, supra, that the
acquisition and dropdown were principally motivated by business
considerations, and that petitioner did not have as its principal
purpose the avoidance or evasion of Federal income tax by
securing a deduction, credit, or other allowance. Absent the
requisite intent, section 269 simply does not apply.
We conclude, as discussed supra, that business
considerations predominated in the acquisition and dropdown in
issue. Accordingly, section 269 does not operate to disallow
petitioner's use of Tri-Power's NOL's.
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