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section 267 had long included certain controlled corporations
within the definition of related parties under section 267(b)
that were subject to the general loss disallowance and gain
adjustment provisions of subsections (a)(1) and (d).10 When
Congress created the special rules of section 267(f), it also
enlarged the class of controlled corporations defined as related
parties, to curb further the sorts of abuses that section 267 was
meant to address:
Congress believed that certain related parties, such as
* * * controlled corporations should be made subject to the
related party rules in order to prevent tax avoidance on
transactions between those parties. [Staff of Joint Comm. on
Taxation, General Explanation of the Revenue Provisions of
the Deficit Reduction Act of 1984, at 542 (J. Comm. Print
1985).]
The House bill would have simply applied the general loss
disallowance rules of section 267(a)(1) to the expanded class of
controlled corporations.11 The Senate bill followed the House
10 Prior to amendment in 1984, sec. 267(b)(3) defined as
related taxpayers:
Two corporations more than 50 percent in value of the
outstanding stock of each of which is owned, directly or
indirectly, by or for the same individual, if either one of
such corporations, with respect to the taxable year of the
corporation preceding the date of the sale or exchange was,
under the law applicable to such taxable year, a personal
holding company or a foreign personal holding company.
11 The House report stated:
the bill extends the loss disallowance and accrual
(continued...)
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