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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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