- 2 -
the transactions, Tracinda and MGM were part of a
"Controlled Group" for the purposes of sec. 267,
I.R.C., Tracinda claims the UA Loss is deferred and
transferred to its basis in the UA shares, by virtue of
the operation of sec. 267(f), I.R.C., and sec.
1.267(f)-1T(c), Temporary Income Tax Regs., 49 Fed.
Reg. 46997 (Nov. 30, 1984). (Sec. 267 issue.)
Tracinda subsequently sold the UA shares to third
parties.
R claims the benefit of the UA Loss should be
denied to both parties because the form adopted by Ps
does not reflect the substance of the transaction. R
seeks to have the UA transaction recharacterized into a
part sale, part redemption transaction. If
recharacterized as a redemption, R contends that sec.
311(a), I.R.C., operates to deny the benefit of the UA
Loss to both parties. (Sec. 311 issue.)
R has denied Ps any tax benefit from the UA Loss.
R has filed a motion for summary judgment on the sec.
311 issue. Both Ps have filed cross-motions for
partial summary judgments on the secs. 311 and 267
issues. These cases have been consolidated to clarify
the tax consequences of the transactions common to all
the parties.
Held: The form chosen by Ps was not a fiction
that failed to reflect the substance of the
transaction. Esmark, Inc. v. Commissioner, 90 T.C. 171
(1988), affd. 886 F.2d 1318 (7th Cir. 1989), followed.
Consequently, sec. 311, I.R.C., has no application to
this transaction.
Held, further: Where a corporation that is a
member of a controlled group is acquired by an
unrelated third party, thereby terminating the
controlled group relationship, and that corporation
simultaneously sells an asset at a loss to a member of
the former controlled group, sec. 267(f), I.R.C., and
sec. 1.267(f)-1T, Temporary Income Tax Regs., 49 Fed.
Reg. 46997 (Nov. 30, 1984), do not defer or deny the
loss of the selling member, or increase the purchasing
member's basis in the asset by the amount of the loss.
William F. Nelson and Suzanne Celeste Feese, for petitioner
in docket No. 13977-96.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011