Trinova Corporation and Subsidiaries - Page 1

                                    108 T.C. No.6                                     

                               UNITED STATES TAX COURT                                

                TRINOVA CORPORATION AND SUBSIDIARIES, Petitioner v.                   
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 2931-94.              Filed February 27, 1997.              

                    P, a corporation, filed a consolidated tax return                 
               with its affiliated companies.  P operated a division                  
               with assets that included certain section 38 assets                    
               upon which investment tax credits (ITC) had been                       
               claimed.  P transferred the division assets to a wholly                
               owned subsidiary, G.  P agreed to transfer its shares                  
               in G to another shareholder, H, in return for H's                      
               shares in P.  The two transactions qualified for                       
               nonrecognition status under secs. 351, 355, and                        
               368(a)(1)(D), I.R.C.  R determined a deficiency for P's                
               failure to include ITC recapture in income under sec.                  
               47(a), I.R.C., on its 1986 consolidated tax return,                    
               relying on Rev. Rul. 82-20, 1982-1 C.B. 6.  Sec.                       
               1.1502-3(f)(2) and (3), Income Tax Regs., particularly                 
               Example (5) thereof, provides for no recapture.  Held:                 
               Rev. Rul. 82-20, 1982-1 C.B. 6, is an unwarranted                      
               attempt to limit the scope of the regulations; no ITC                  
               recapture is includable in P's income.                                 

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