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other than a deferred intercompany transaction; S does
not defer or eliminate the $1,000 deduction for
interest and P does not defer or eliminate the $1,000
item of interest income. Thus, consolidated taxable
income for 1966 reflects interest income of $1,000 and
a corresponding deduction for interest of $1,000.
* * * * * * *
Example (13). Corporations P and S file
consolidated returns on a calendar year basis for 1966
and 1967. S reports income on the accrual method while
P reports income on the cash method. On December 31,
1966, S would properly accrue interest of $1,000 which
is payable to P. On February 1, 1967, S pays P the
$1,000. Both the deduction and the item of income are
taken into account for 1967, the later year. * * *
Consolidated taxable income for 1967 reflects both
interest income of $1,000 and a corresponding deduction
for interest of $1,000.
* * * * * * *
Example (16). Corporations P and S file
consolidated returns on a calendar year basis. On
January 10, 1968, P sells an issue of its $100 par
value bonds. S purchases a bond from P for $110. S
does not elect under section 171 to amortize the $10
premium. P may not take the $10 premium into account
as income until it redeems the bond since S cannot
properly take a deduction for the $10 premium until the
bond is redeemed.
In each of these examples, there was a direct relationship
between the income and the deduction. The money never left the
consolidated group, and third parties were not involved. A
single item (payment) within the group was an expense (deduction)
for one member of the group and income for another member.
In the case at bar, third parties (the independent GM
dealers and retail/fleet customers) were involved, and a single
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