Unionbancal Corporation - Page 2

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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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