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to prevent the attribution of the dealership’s LIFO reserves to
petitioner. Section 1363(d)(4)(D) provides:
(D) Not treated as member of affiliated group.–-
Except as provided in regulations, the corporation
referred to in * * * [section 1363(d)(1)] shall not be
treated as a member of an affiliated group with respect
to the amount included in gross income * * *
Simply stated, section 1363(d)(4)(D) requires that a member of an
affiliated group that elects to be an S corporation be treated as
an independent entity for purposes of determining the amount
included in gross income. Section 1363(d)(4)(D) requires only a
converting member of the affiliated group (rather than each member
of the affiliated group) to be responsible for the tax imposed on
the recapture of the corporation’s LIFO reserves. See S. Rept.
100-445, at 438 (1988). Section 1363(d)(4)(D) does not prohibit
attribution of the inventory and LIFO reserves to petitioner in
this case.
To conclude, we hold that the aggregate approach (as opposed
to the entity approach) better serves the underlying purpose and
scope of section 1363(d) in the circumstances of this case.
Consequently, petitioner is deemed to own a pro rata share
($4,792,372) of the dealerships’ inventories. Accordingly, we hold
that upon its election of S corporation status, petitioner was
required to include in its gross income its ratable share of the
LIFO recapture amount.
In reaching our conclusions, we have considered carefully all
arguments made by the parties for a result contrary to that
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