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exchange for Industrias' stock falls within the scope of section
367(a).
Respondent contends that petitioner received stock with a
value of US$1,955,000 (i.e., equal to the U.S.-dollar equivalent
of the pesos) and transferred a debt interest with a basis of
US$1,125,000. Respondent further contends that the gain
realized, $830,000 (i.e., US$1,955,000 minus US$1,125,000), must
be recognized pursuant to sections 1001(c) and 367(a).
Petitioner contends that CMI-Texas did not realize gain on the
transfer because the fair market value of the stock received
equaled the basis of the debt interest transferred. Petitioner
alternatively contends that, if CMI-Texas did realize gain, the
amount of gain recognized is, pursuant to section 1.367(a)-
1T(b)(3)(i), Temporary Income Tax Regs., 51 Fed. Reg. 17939 (May
16, 1986), limited to zero because the debt interest was not
appreciated property.
Assuming arguendo that CMI-Texas realized gain on the
transaction, we agree with petitioner that the amount of
recognized gain is limited to zero. Section 1.367(a)-
1T(b)(3)(i), Temporary Income Tax Regs., provides that the gain
recognized under section 367(a) "shall in no event exceed the
gain that would have been recognized on a taxable sale of those
items of property if sold individually". The regulation includes
the gain limitation to "[ensure] that the gain recognized under
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