- 25 -
Sale) should be treated as a related party sale covered by
section 267(f). Respondent and Tracinda argue that Tracinda and
Kerkorian had control of MGM when the UA Sale occurred.
Respondent concedes MGM was not part of the Tracinda and
Kerkorian controlled group immediately after the sale.
Respondent considers control prior to the sale as sufficient to
establish that the UA Sale was a sale "between members of the
same controlled group."21 Respondent and Tracinda further argue
that this interpretation is consistent with the 1984 temporary
regulation. As a consequence of this view, respondent's present
position is that the UA Loss should be denied in part to MGM22
and should be instead transferred to the basis of Tracinda's UA
stock.23 Respondent's proposed reallocation of the loss is made
pursuant to respondent's interpretation of paragraph (c)(6) and
(7) of the 1984 temporary regulation.
21Respondent's argument is based on the application of the
"binding commitment test" enunciated in a line of cases discussed
infra pp. 36-37.
22Respondent would disallow that part of the UA Loss that is
proportionate to the number of shares purchased by Tracinda, on
its own behalf and on behalf of the UA executives, to the total
number of UA shares purchased. Respondent believes that Tracinda
should be viewed as an agent for the Subscribing Public and that
the basis shift rules should not apply to the 14 percent of UA
stock acquired by the Subscribing Public.
23Respondent's notice of deficiency to Tracinda dated Apr.
24, 1996, however, states that "sections 267(a) and 267(f) do not
apply to allow a basis adjustment in the subsequent sale of
MGM/UA Communications Co. [UA] common stock."
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