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portfolio was increased by the amount of the deferred
loss. The United Kingdom has declined to allow SC-UK a
stepped-up basis in the loan portfolio.
In 1995, R replaced the temporary regulations under
sec. 267(f), I.R.C., with final regulations, effective
prospectively. The final regulations operate to restore a
deferred loss under sec. 267(f), I.R.C., to the seller when
it leaves the controlled group, even if the loss property
has not been disposed of outside the controlled group. R
denied P’s request for elective retroactive application of
the final regulations.
Held: Sec. 1.267(f)-1T(c)(6), Temporary Income
Tax Regs., supra, is valid. P is not entitled to
deduct the $85.6 million loss deferred under sec.
267(f), I.R.C.
Held: Sec. 1.267(f)-1T(c)(6), Temporary Income
Tax Regs., supra, does not violate Article 24,
paragraph (5) of the United States-United Kingdom
Income Tax Treaty, Dec. 31, 1975, 31 U.S.T. 5668.
Held: R's refusal to allow P to elect retroactive
application of the 1995 final regulations under sec.
267, I.R.C., is permissible under sec. 7805(b), I.R.C.
Frederick R. Chilton, Jr. and Paolo M. Dau, for petitioner.
Cynthia K. Hustad, for respondent.
THORNTON, Judge: Respondent determined a deficiency in
petitioner's corporate Federal income tax for the taxable year
ending October 31, 1988, in the amount of $1,676,690. The only
issue before the Court is whether respondent erred in refusing to
allow petitioner a deduction in the amount of $85,612,820
(representing losses previously deferred pursuant to section
267(f) and arising from petitioner’s 1984 sale of certain loans
to a member of the same controlled group) when petitioner left
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