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it leaves the controlled group, even if the loss property has not
been disposed of outside the controlled group. See secs.
1.267(f)-1(a)(2), 1.1502-13(f)(1)(iii), Income Tax Regs.
Petitioner challenges the validity of the Loss Restoration
Exception. Petitioner asserts that the Temporary Regulation
violates the plain meaning and intent of section 267(f) by
effectively denying it the deferred loss on its 1984 loan
portfolio sale. In addition, petitioner argues that the
Temporary Regulation violates the U.S. income tax treaty with the
United Kingdom. See The Convention between the Government of the
United States of America and the Government of the United Kingdom
of Great Britain and Northern Ireland for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with respect to
Taxes on Income and Capital Gains, Dec. 31, 1975, U.S.-U.K., 31
U.S.T. 5668 (hereinafter U.S.-U.K. treaty). Finally, petitioner
argues that respondent's refusal to allow it to elect retroactive
application of the Final Regulation is not authorized by section
7805(b).
I. Validity of the Temporary Regulation
A. Standard of Review
A legislative regulation “is entitled to greater deference
than an interpretive regulation, which is promulgated under the
general rulemaking power vested in the Secretary by section
7805(a).” Romann v. Commissioner, 111 T.C. 273, 281 (1998); see
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