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Final Regulation, and that both cannot be reasonable
interpretations of the statute. Petitioner contends that the
Final Regulation is evidence that the Temporary Regulation was in
error.
We are unpersuaded by petitioner's arguments. After
receiving public comments on the Temporary Regulation, the
Treasury Department adopted the changes incorporated in the Final
Regulation, explaining that it was simplifying the rules to
correspond more closely to the consolidated return rules.13 It is
well established that “the agency administering the statute has
flexibility to change a regulation in the light of administrative
experience.” Central Pa. Sav. Association & Subs. v.
13 The Notice of Proposed Rulemaking for the proposed 1995
regulations states:
The proposed regulations retain the basic approach
of the current regulations but simplify their operation
by more generally incorporating the consolidated return
rules.
The proposed regulations eliminate the rule that
transforms S's [selling member's] loss into additional
basis in the transferred property when S ceases to be a
member of the controlled group. Instead, the proposed
regulations generally allow S's loss immediately before
it ceases to be a member. This conforms to the
consolidated return rules, and eliminates the need for
special rules. An anti-avoidance rule is adopted,
however, to prevent the purposes of section 267(f) from
being circumvented, for example, by using the proposed
rule to accelerate S's loss. [Notice of Proposed
Rulemaking, Consolidated Groups and Controlled Groups--
Intercompany Transactions and Related Rules, reprinted
in 1994-1 C.B. 724, 732.]
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