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On July 3, 1986, a written “Presentation to Inspiration
Resources Corporation” prepared by ML Capital Markets was
submitted to Inspiration. The presentation again described the
assets proposed to be owned by ML Leasing at the time of sale of
the ML Leasing stock to Inspiration and the pretax net cashflows
expected to be derived from the portfolio of leases. The 1986
retained assets were not included in those assets. The
presentation proposed a purchase price of $98 million and a
closing date at the end of 1986.
C. The Tax Plan and the Section 304 Cross-Chain Sale
Sometime between 1985 when the possible sale of ML Leasing
was first discussed and July 21, 1986, when ML Leasing
contributed the 1986 retained assets to Merlease Leasing Corp.
(Merlease), petitioner finalized a plan9 to strip ML Leasing of
the 1986 retained assets and to sell ML Leasing outside the
consolidated group using planning techniques designed to increase
petitioner’s tax basis in ML Leasing and thereby eliminate gain
on the sale of ML Leasing. The plan consisted of the following
steps:
9It appears from the ML Leasing offering memorandum that
petitioner originally intended to have MLL distribute the 1986
retained assets to MLCR as a dividend. We infer from this fact
that petitioner finalized its plan to engage in sec. 304 cross-
chain sales after the ML Leasing offering memorandum had been
prepared.
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