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limited to: (1) The importance of achieving the purpose to the
success of the business; (2) the extent to which the transaction
is prompted by a person not having a proprietary interest in
either corporation, or by other outside factors beyond the
control of the distributing corporation; and (3) the immediacy of
the conditions prompting the transaction. Sec. 1.355-2(d)(3)(i)
and (ii), Income Tax Regs.
Petitioner identifies three purported corporate business
purposes for the disputed distribution: (1) Increased
competition caused by a changing economic environment that
favored the larger, national laboratories; (2) Oklahoma State law
restricting the ownership of petitioner to licensed physicians or
physician-owned entities licensed to practice medicine within
Oklahoma; and (3) NHL’s requirement that each of petitioner’s
physician-shareholders sign binding and enforceable covenants not
to compete in the clinical laboratory business. Respondent
contends there was no valid corporate business purpose for the
distribution. We consider each of the purported corporate
business purposes below.
i. Increased Competition
The first purported corporate business purpose asserted by
petitioner is that the changing economic environment in the
clinical laboratory market in 1993 favored the large, national
laboratories over the smaller clinical laboratories, such as
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