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at issue for the taxable year ended December 25, 1987. The
parties agree that these sales were section 304 transactions.
2. ML Interfunding
Merrill Lynch Interfunding, Inc. (ML Interfunding or MLI),
was a wholly owned subsidiary of ML Capital Resources. By
resolutions dated March 27, 28, and 30, 1987, the boards of
directors of ML Capital Resources and ML Asset Management
approved the sale of all the stock of ML Interfunding to ML Asset
Management.23 ML Capital Resources and ML Asset Management
entered into a stock purchase agreement dated March 30, 1987,
which provided for an initial purchase price of $160 million to
be paid at closing with the purchase price to be adjusted as soon
as practicable by subsequent agreement of ML Asset Management and
ML Capital Resources so as to equal the fair market value of the
shares as of March 30, 1987. The sale closed on March 30,
1987.24 Immediately before its purchase of ML Interfunding, ML
23By resolution dated Mar. 27, 1987, the board of directors
of ML Interfunding declared and paid a dividend having a total
value of $100 million to ML Capital Resources of certain
preferred stock that it owned in Gelco Corporation (Gelco) plus
the shares of certain unaffiliated corporations (portfolio
stock), which it had acquired as a dividend from its wholly owned
subsidiary, ML Portfolio Management, by resolution dated Mar. 26,
1987. By resolution dated Mar. 28, 1987, ML Capital Resources
contributed the portfolio stock and the Gelco shares to Merrill
Lynch Property Holdings, Inc., a direct wholly owned subsidiary
of ML Capital Resources.
24In a valuation report dated Apr. 18, 1988, Deloitte
Haskins-Sells determined that the fair market value of the stock
(continued...)
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