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The separate taxable income of a member (including a
case in which deductions exceed gross income) is
computed in accordance with the provisions of the Code
covering the determination of taxable income of
separate corporations, subject to the following
modifications:
(a) Transactions between members * * * shall be
reflected according to the provisions of [section]
1.1502-13 * * * ;
* * * * * * *
(d) The method of accounting under which such
computation is made and the adjustments to be made
because of any change in method of accounting shall be
determined under [section] 1.1502-17;
Section 1.1502-13(b)(1), Income Tax Regs., provided that,
generally, gain or loss on intercompany transactions,27 other
than "deferred intercompany transactions", was not deferred or
eliminated. Section 1.1502-13(b)(2), Income Tax Regs., however,
contained an exception to this rule:
(2) Special rule. If, in an intercompany
transaction (other than a deferred intercompany
transaction), one member would otherwise properly
[take] an item of income or a deduction into account
for a consolidated return year earlier than the year
(whether consolidated or separate) for which another
member of the group can properly take into account the
corresponding item of income or deduction, then both
the item of income and the deduction shall be taken
into account for the later year (whether consolidated
or separate). * * *
27 Sec. 1.1502-13(a)(1), Income Tax Regs., defined the term
"intercompany transaction" as "a transaction during a
consolidated return year between corporations which are members
of the same group immediately after such transaction".
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