Trinova Corporation and Subsidiaries - Page 19

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               The Court of Appeals for the Second Circuit in Salomon, Inc.           
          v. United States, supra at 842-843, explained as follows:                   


               In substance, if not in form, the direct and the circuitous            
               transaction are the same.  See Commissioner v. Court Holding           
               Co., 324 U.S. 331, 334, 65 S.Ct. 707, 708, 89 L.Ed. 981                
               (1945).  Each achieves a rapid transfer of section 38                  
               property outside the group.  To distinguish between them               
               would deny economic reality.  See Gregory v. Helvering, 293            
               U.S. 465, 470, 55 S.Ct. 266, 268, 79 L.Ed. 596 (1935)                  
               (refusing to "exalt artifice above reality" in determining             
               tax liability).  Moreover, such a holding would allow the              
               common parent of a consolidated group, such as * * * [the              
               parent], to move section 38 property outside the group                 
               without paying recapture taxes simply by first transferring            
               the property to a member subsidiary and then distributing              
               the subsidiary's stock to the third-party.  * * *                      
                                    * * * * * * *                                     
               The rapidity with which these components follow one another            
               suggest that they are, in substance, parts of one overall              
               transaction intended to dispose of the section 38 assets               
               outside of the consolidated group. * * * These factual                 
               circumstances, timing and intent * * *.  * * * lead to the             
               conclusion that the two components are steps in a larger               
               transaction which, when viewed as a whole, constitutes a               
               section 47(a)(1) "disposition."  * * *                                 
                                    * * * * * * *                                     
               Under these circumstances, the transaction is, in substance,           
               a means of moving the assets outside the group.  * * *                 

               The Court of Appeals for the Ninth Circuit in Walt Disney,             
          Inc. v. Commissioner, supra at 741, relied heavily upon the                 
          analysis of the Court of Appeals for the Second Circuit, quoted             
          from the above language, and stated the following --                        

               "in substance, if not in form, the direct and the                      
               circuitous transaction are the same" and "to                           




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