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sales between controlled group members, “If the seller’s loss may
not be disallowed to the seller, then of necessity it must
eventually be allowed to the seller, i.e., restored to it.”
Petitioner argues that, as applied to petitioner, the Temporary
Regulation impermissibly imposes the loss disallowance rule of
section 267(a)(1) and reinstates the gain-reduction rule of
section 267(d).
We disagree. By rendering inapplicable the general rules
contained in subsections (a)(1) and (d), section 267(f)(2)(A)
simply makes operable the special rules of subsection (f). Those
special rules indicate that when the selling member leaves the
controlled group before the loss property is disposed of outside
the group, the loss is deferred until such time as may be
prescribed in regulations.
The Temporary Regulation does not replicate the loss
disallowance and gain adjustment mechanisms of subsections (a)(1)
and (d). Generally speaking, under subsection (a)(1) the loss is
denied absolutely, not only to the seller but to any party. The
gain-reduction adjustment under subsection (d) mitigates the
subsection (a)(1) loss disallowance only where the transferee
subsequently resells the loss property at a gain. By contrast,
the Temporary Regulation generally preserves the deferred loss in
the controlled group for U.S. income tax purposes by means of a
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