- 26 -
subsidiaries. Neither party suggested that such fair market
value should be allocated between the elements involved in the
exchange. Under these circumstances, we did not address the
question whether, had ITT been entitled to deduct such losses,
the full amount of the fair market value of the ITT stock should
have been taken into account or whether a portion of that value
should have been treated as a capital contribution to the
subsidiaries. Furthermore, we noted that we were expressing no
opinion as to what our position would be outside the consolidated
return arena, i.e., in a situation where the consolidated return
regulations did not apply. See International Telephone &
Telegraph v. Commissioner, 77 T.C. at 84 n.26. In light of the
foregoing, we do not think we are precluded by International
Telephone & Telegraph, from examining the question whether the
fair market value of Metals' stock should be attributed in part
to the conversion of the debentures by Metals and thus not
constitute an element of loss upon redemption.6 Cf. National Can
Corp. v. United States, 687 F.2d 1107, 1116 (7th Cir. 1982).
In our view, there were two elements involved in the
issuance of Metals' stock: (1) The acquisition of the debentures
and the right to obtain reimbursement for the principal amount
6 We note that neither party has suggested that any provision of
the existing consolidated return regulations applies to the
instant case. See National Can Corp. v. United States, 687 F.2d
1107, 1117 (7th Cir. 1982).
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