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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
12(...continued)
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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