- 54 -
market rate of interest, the RISC's had face values of $10,000
and stated interest of $2,000. See supra pp. 33-36. Thus, if
GMAC held the below-market nonrate-supported RISC to maturity the
GM group made a $2,500 profit ($12,000 minus the $9,500 paid to
the independent GM dealer), or if the customer paid off the RISC
immediately the GM group made a $500 profit (the $10,000 of
stated principal minus the $9,500 paid to the independent GM
dealer). Whereas, if GMAC held the rate-supported RISC to
maturity the GM group made a $2,000 profit ($12,000 minus the
$10,000 paid to the independent GM dealer), or if the customer
paid off the RISC immediately the GM group made no profit (the
$10,000 of stated principal minus the $10,000 paid to the
independent GM dealer).
The purpose of the consolidated return regulations is to
provide rules so that the tax liability of a consolidated group
will be clearly reflected and to prevent the avoidance of such
tax liability. See sec. 1502. GM and GMAC have not fabricated a
transaction where numbers merely are being shuffled on paper
without any real loss to the GM group. The GM group's treatment
of the rate support deductions and the discount income clearly
reflected its tax liability.
Based on the foregoing, we conclude that the discount income
was not the corresponding item of income to the rate support
deductions.
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