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property under section 47 and triggered recapture of investment
tax credit on any section 38 property that was included with the
property transferred.
Section 1.1502-3(f)(3), Example (5), Income Tax Regs.,
simply is not applicable. That example involved, in year 1, only
a transfer of property within the affiliated group. After the
transfer, the property stayed within the affiliated group and was
included in the consolidated return for the remainder of year 1.
In year 2, no further transfer of property occurred. Rather, in
an apparently unrelated transaction, a third party purchased the
stock of the transferee, and the transferee, which had received
the property in year 1, left the affiliated group. For the first
time in year 2, the property will not be included in the
consolidated return of the affiliated group.
The transaction described in Example (5) of the above
regulation bears little resemblance to that involved in this case
(where a transfer of property and a change in ownership of the
transferee corporation occur effectively within the same taxable
year as part and parcel of a single plan and transaction under
which the transferee corporation promptly leaves the affiliated
group and is no longer part of the affiliated group for purposes
of inclusion in the transferor corporation’s consolidated tax
return). Example (5) of the above regulation under the
consolidated return regulations should not be read to immunize
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