- 36 -
was no "deferred intercompany transaction", "loss that has been
deferred", or "unrestored deferred loss at the time it [MGM]
ceased to be a member" of the controlled group.29
None of the parties have directed us to any case law
interpreting the scope of section 267(f).30 We have, however,
been directed to a series of cases which interpret what is now
section 267(a)(1) and (b)(2). Federal Cement Tile Co. v.
Commissioner, 40 T.C. 1028 (1963), affd. 338 F.2d 691 (7th Cir.
29 We note that the exception to restoration rule contained
in paragraph (c)(6) and (7) of the 1984 temporary regulation was
eliminated by a final regulation published in 1995. When the
Commissioner proposed this regulation in 1994, the preamble to
the proposed sec. 1.267(f)-1, Income Tax Regs., 1994-1 C.B. 724,
732, stated:
The current regulations applicable to controlled
groups [sec. 1.267(f)-1T] generally conform to the
basic intercompany transaction rules applicable to
consolidated groups. * * *
The current regulations also provide that if S sells
property to B at a loss, and the property is still
owned by B when S ceases to be a member of the same
controlled group, S never takes the loss into account.
Instead, B's basis in the property is increased by an
amount equal to S's unrestored loss.
The proposed regulations eliminate the rule that
transforms S's loss into additional basis in the
transferred property when S ceases to be a member of
the controlled group. Instead, the proposed
regulations generally allow S's loss immediately before
it ceases to be a member [of the controlled
group]. * * *
30Sec. 267(f) operates on transactions between parties
defined in subsec. (b)(3), which provides: "Two corporations
which are members of the same controlled group (as defined in
subsection (f))".
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