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sophisticated to handle the lease portfolio; (2) a purchaser
should be able to finance the transaction; and (3) a purchaser
should have a net operating loss (NOL) carryforward and,
therefore, should be indifferent to the fact that the lease
portfolio was about to turn for tax purposes.
In or around April 1986, Mr. Sands contacted Inspiration
Resources Corp. (Inspiration). Inspiration was a diversified
natural resources company whose stock was publicly traded on the
New York and Toronto stock exchanges. Inspiration was controlled
by Minerals & Resources Corp., Ltd. (MINORCO), a Bermuda
corporation headquartered in London, England. Mr. Sands had
worked with Inspiration on other matters before 1986 and was
aware that Inspiration had a significant NOL.
Petitioner provided to Inspiration a document entitled
“MERRILL LYNCH LEASING INC. Proposed Sale of Equity Investment
Assets” dated April 1986 (ML Leasing offering memorandum). The
ML Leasing offering memorandum described the assets that would be
owned by ML Leasing at the time of the sale and the pretax
cashflows expected to be derived from the portfolio of leases.
The ML Leasing offering memorandum described the proposed
transaction as follows:
Prior to the sale of Leasing’s stock, any of Leasing’s
assets which are not to be sold will be dividended to
MLCR. Assets remaining in Leasing will be the equity
investments in real estate and equipment net leased to
major corporations, tax benefits purchased under the
1981 Tax Act, unused ITC carryover, and any state net
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