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[restructuring them] as two or more successive below-
market loans (“deemed loans”) * * *, as follows:
(i) A deemed below-market loan made by the named
lender to the indirect participant [e.g., a shareholder
of the lender]; and
(ii) A deemed below-market loan made by the
indirect participant to the borrower [third party or
nonshareholder].
Sec. 1.7872-4(g)(1)(i) and (ii), Proposed Income Tax Regs., 50
Fed. Reg. 33561 (Aug. 20, 1985). Where one corporation makes a
loan to another under common control, the proposed regulations
restructure it as a loan from the lending corporation to its
parent followed by a loan from the parent to the borrowing
entity. Thus the proposed regulations treat the entire loan as
being made first to the shareholder(s) of the lender.
The proposed regulations do not directly address the
questions, raised by petitioner, concerning whether a
nonshareholder would be subject to section 7872 under the facts
before us or how the nonshareholder would be treated in
connection with any benefit received from the receipt of a below-
market loan by the borrowing entity.6 Although those questions
are raised and argued by petitioner, we do not have before us
6 The remainder of the proposed regulations concerning
indirect loans contains some examples and focuses on the
following situations: (1) Applying sec. 7872 separately to each
deemed loan, and (2) dealing with circumstances where
intermediaries are used to “avoid the application of section
7872(c)(1)(A), (B), or (C)”. Sec. 1.7872-4g(2), Proposed Income
Tax Regs., 50 Fed. Reg. 35561 (Aug. 20, 1985).
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