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computers leased to IBM and had been active in other types of
financing for medium-sized businesses. ML Capital Resources also
owned the stock of a number of subsidiary corporations that were
engaged in the business of arranging equity and debt financing
for middle- and small-sized companies.
Merrill Parent decided to sell that portion of ML Capital
Resources’ business consisting of the ownership of leased
property. In the aggregate, the leases were generating
substantial positive cashflow but had “turned around” for income
tax purposes so that if ML Capital Resources continued to hold
them, the leases would generate taxable income in excess of
pretax cashflow. Because Merrill Parent did not want ML Capital
Resources’ nonleasing assets to leave the consolidated group, it
decided that ML Capital Resources would sell to other affiliated
corporations the stock of certain subsidiary corporations that
were engaged in lending and financing activities or that owned
other assets and businesses that were not related to its core
consumer leasing operations (collectively referred to as the 1987
retained assets).20
A. Petitioner Seeks a Purchaser
Merrill Parent decided to conduct the sale of ML Capital
Resources utilizing a bidding process. By February 17, 1987, a
20Senior management decided which assets to sell and which
assets to retain within the consolidated group.
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