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period of time between the distribution and the sale or exchange,
the stronger the evidence of device. Id. On brief, petitioner
concedes “100% of Clinpath’s stock was sold to NHL, and the
distribution and the subsequent sale of stock occurred on”
October 30, 1993.
In addition, a sale or exchange negotiated or agreed upon
before the distribution is substantial evidence of device. Sec.
1.355-2(d)(2)(iii)(B), Income Tax Regs. On brief, petitioner
concedes that “there is no question that the sale of the Clinpath
stock to NHL was prearranged prior to the spin-off transaction in
which the clinical laboratory assets of Petitioner were
transferred to Clinpath.” Indeed, the sale of Clinpath stock to
NHL was discussed, negotiated, and agreed upon by NHL and
petitioner and was anticipated by both parties well before the
distribution. Sec. 1.355-2(d)(2)(iii)(D), Income Tax Regs. This
factor is substantial evidence of device.
We conclude, based on a review of the applicable factors,
that the facts and circumstances of this case present substantial
evidence of device within the meaning of section 355(a)(1)(B).
2. Nondevice Factors and
Absence of Earnings and Profits
In order to overcome the substantial evidence of device,
petitioner argues that: (1) Although both petitioner and
Clinpath had some accumulated earnings and profits during the
periods in question, these amounts were not significant enough to
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