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the debentures. We dealt with the question of entitlement of the
parent or subsidiary to a loss in light of a provision in a
consolidated return regulation that is no longer in effect.4 Our
holding that the subsidiaries had deductible losses was within
that narrow framework. Although not expressly articulated, that
the debentures survived their acquisition by ITT was an essential
element of our ultimate conclusion. See Id., 963 F.2d at 565-
566.
The cases relied upon by respondent, Chock Full O'Nuts Corp.
v. United States, 453 F.2d 300, 304-305 (2d Cir. 1971); AMF
Incorporated v. United States, 201 Ct. Cl. 338, 476 F.2d 1351,
1353-1354 (1973); Hunt Foods & Industries, Inc. v. Commissioner,
57 T.C. 633, 642 (1972), affd. per curiam 496 F.2d 532 (9th Cir.
1974), for the proposition that convertible debentures can be
only converted or redeemed, but not both, are clearly
distinguishable. First, each case addressed the distinct issue
whether the taxpayer could deduct as original issue discount the
part of the issue price attributable to the conversion feature.
4 The regulation, sec. 1.1502-41A, Income Tax Regs., is not
applicable for tax years beginning after Dec. 31, 1965. See T.D.
6894, 1966-2 C.B. 362. Under former sec. 1.1502-41A, Income Tax
Regs., the subsidiaries in International Telephone & Telegraph v.
Commissioner, 77 T.C. 60 (1981), supplemented by 77 T.C. 1367,
affd. per curiam 704 F.2d 252 (2d Cir. 1983), were considered to
have purchased their debentures from the parent, ITT, for an
amount equal to ITT's basis in the debentures and the
subsidiaries bore losses. International Telephone & Telegraph v.
Commissioner, 77 T.C. at 1368.
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