Reynolds Metals Company and Consolidated Subsidiaries - Page 22

                                        - 22 -                                         
          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          consolidated return regulation that is no longer in effect.4  Our            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.                                               





Page:  Previous  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  31  Next

Last modified: May 25, 2011