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1. Whether Section 1.1502-14(d)(4) Operates Solely as an
Exception to Section 1.1502-14(d)(3)
The flush language of section 1.1502-14(d)(4)(i), Income Tax
Regs., provides that if the enumerated requirements are met “then
any gain or loss of any member on redemption or cancellation of
such obligation shall be deferred, and subparagraph (3) of this
paragraph shall not apply.” Petitioner reads this language to
mean that section 1.1502-14(d)(4), Income Tax Regs., operates
solely to override section 1.1502-14(d)(3), Income Tax Regs., and
does not otherwise operate to defer gains and losses. We
disagree.
Section 1.1502-14(d)(3), Income Tax Regs., is a restoration
provision, i.e., it establishes the circumstances under which an
intercompany gain or loss deferred elsewhere in the consolidated
return regulations is triggered into income (i.e., restored).
Specifically, section 1.1502-14(d)(3), Income Tax Regs., restores
gains or losses deferred with respect to an obligation under
section 1.1502-14(d)(1), Income Tax Regs. Gains and losses
deferred under section 1.1502-14(d)(1), Income Tax Regs., are
those that are “recognized under the Code to a member during a
consolidated return year because of a sale or disposition (other
than a redemption or cancellation) of an obligation of another
member”.5
5 The parties agree that sec. 1.1502-14(d)(1), Income Tax
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