Unionbancal Corporation - Page 24

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              The Senate report stated in pertinent part:                             
              The bill extends the loss disallowance and accrual                      
              provisions of section 267 * * * to transactions between                 
              certain controlled corporations.  For purposes of these loss            
              disallowance and accrual provisions, corporations will be               
              treated as related persons under the controlled corporation             
              rules of section 1563(a), except that a 50-percent control              
              test will be substituted for the 80-percent test.  These                
              rules are not intended to overrule the consolidated return              
              regulation rules where the controlled corporations file a               
              consolidated return.  In the case of controlled                         
              corporations, losses will be deferred until the property is             
              disposed of * * * by the affiliate to an unrelated third                
              party in a transaction which results in a recognition of                
              gain or loss to the transferee, or the parties are no longer            
              related.  In a transaction where no gain or loss is                     
              recognized by the transferee, the loss is deferred until the            
              substitute basis property is disposed of. [S. Print 98-169              
              (Vol. 1), at 496 (1984); fn. ref. omitted; emphasis added.]             
              In support of its position, petitioner relies upon the                  
         underscored Senate report language supra.  This report language              
         was dropped, however, in the conference committee report, which              
         stated as follows:                                                           
              The provision generally follows the Senate amendment with               
              the following modifications:                                            
                        *    *    *    *    *    *     *                              
                  (3) The operation of the loss deferral rule is clarified            
              to provide that any loss sustained shall be deferred until              
              the property is transferred outside the group, or until such            
              other time as is provided by regulations.  These rules will             
              apply to taxpayers who have elected not to apply the                    

                         member of such controlled group (determined as of            
                         the time of the disposition), and                            
                              (B) recognizes gain or loss on such                     
                         disposition”.  [S. Print 98-169 (Vol. 2), at 520-            
                         521 (1984).]                                                 

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