Rountree Cotton Co. - Page 18




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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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