Unionbancal Corporation - Page 21

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         explicitly identifies the loss with the property transferred and             
         not with the seller.  Specifically, subsection (d) provides that             
         where the “loss sustained by the transferor" is disallowed under             
         subsection (a)(1), the “loss * * * properly allocable to the                 
         property sold or otherwise disposed of" reduces any gain                     
         recognized by the transferee.  Similarly, the Temporary                      
         Regulation effectively identifies the deferred loss with the loss            
         property by means of a basis adjustment.                                     
              Petitioner argues that the use of the verb “defer” in                   
         section 267(f) necessarily denotes postponement and restoration              
         of the seller’s loss to the seller.  Under the literal language              
         of the statute, however, what is deferred under section                      
         267(f)(2)(B) is not the seller's recognition of the seller's                 
         loss, but rather the "loss" itself.  Under the Temporary                     
         Regulation, this loss is not recognized by the seller or any                 
         other party while the controlled group continues to hold the loss            
         property.  Rather, the loss is recognized only when the loss                 
         property leaves the controlled group.  This result is within the             
         statutory delegation of authority to the Treasury Department.                
              3.  The Temporary Regulation Is Consistent With the                     
                  Pertinent Legislative History.                                      
              This result also harmonizes with the purpose of the statute             
         to prevent premature recognition of losses among related                     
         taxpayers.  Before the enactment of subsection (f) in 1984,                  

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Last modified: May 25, 2011