Unionbancal Corporation - Page 18

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         basis adjustment that applies without regard to whether the loss             
         property is subsequently resold at a gain or loss.                           
              2.  Does the Temporary Regulation Permissibly Accrue the                
                  Benefit of the Deferred Loss to the Purchasing Member               
                  Rather Than to the Selling Member?                                  
              Petitioner argues that recognition of the deferred loss by              
         the purchasing party is inconsistent with a general principle                
         that allowable losses should be confined to the taxpayer                     
         sustaining them, citing various cases, including New Colonial Ice            
         Co. v. Helvering, 292 U.S. 435, 440-441 (1934).  Section 267,                
         however, constitutes a statutory exception to any such general               
         principle.  Losses otherwise allowable under section 165 are                 
         disallowed under section 267 to prevent abuses resulting from the            
         generation of loss deductions by persons with common economic                
         interests.  See Davis v. Commissioner, 88 T.C. 122 (1987), affd.             
         866 F.2d 852 (6th Cir. 1989); Hassen v. Commissioner, 63 T.C. 175            
         (1974), affd. 599 F.2d 305 (9th Cir. 1979).                                  
              In McWilliams v. Commissioner, 331 U.S. 694 (1947), the                 
         Supreme Court thoroughly considered and explained the purposes of            
         section 24(b) of the Internal Revenue Code of 1939, which was the            
         predecessor to section 267:                                                  
              Section 24(b) states an absolute prohibition--not a                     
              presumption--against the allowance of losses on any sales               
              between the members of certain designated groups.  The one              
              common characteristic of these groups is that their members,            
              although distinct legal entities, generally have a near-                
              identity of economic interests.  It is a fair inference that            
              even legally genuine intra-group transfers were not thought             

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