Square D Company and Subsidiaries - Page 1

                                   121 T.C. No. 11                                    

                               UNITED STATES TAX COURT                                

                  SQUARE D COMPANY AND SUBSIDIARIES, Petitioner v.                    
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 6067-97.           Filed September 26, 2003.                

                    P was a publicly held U.S. corporation and, after                 
               its acquisition by a foreign corporation (S) through a                 
               reverse subsidiary merger, was a U.S. corporation                      
               indirectly owned by S, during the years in issue.                      
                    To finance the acquisition of P, S obtained a                     
               commitment from two banks to extend loans to a to-be-                  
               organized subsidiary equal to one-half the acquisition                 
               price, not to exceed $1.125 billion.  The subsidiary                   
               was created for the purpose of acquiring P.  It was to                 
               use the loan proceeds to purchase P’s outstanding                      
               shares, at which time it would merge into P and cease                  
               to exist.  As consideration for the banks’ commitment,                 
               S became obligated to pay the banks a loan commitment                  
               fee and to indemnify the banks for any legal fees                      
               incurred in connection with their agreement to extend                  
               credit for the acquisition.  The subsidiary formally                   
               assumed S’s obligations with respect to the banks’                     
               legal fees and became obligated to pay a portion of the                
               loan commitment fees.  After initially resisting the                   
               acquisition, P agreed to it and as a consequence of the                

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