Textron Inc. and Subsidiary Companies - Page 8

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          security in exchange for property in a section 351 transaction.7            
          Thus, the corporation’s gain in the section 351 exchange would              
          not have been “recognized under the Code” as required to invoke             
          section 1.1502-14(d)(1), Income Tax Regs.   As a result, section            
          1.1502-14(d)(4), Income Tax Regs., operated independently in the            
          example to defer the gain on the redemption of the security and             
          not as an override of section 1.1502-14(d)(3), Income Tax Regs.             
               Accordingly, we find that gains or losses on the redemption            
          of an obligation may be deferred under section 1.1502-14(d)(4),             
          Income Tax Regs., irrespective of the application of section                
          1.1502-14(d)(1) and (3), Income Tax Regs.                                   
          2.   Whether The Stock Redemption Was a “Tax Free” Exchange                 
               The heading to section 1.1502-14(d)(4), Income Tax Regs.,              
          refers to obligations acquired in “tax-free exchanges”.                     
          Petitioner argues that the 1977 stock redemption was not a tax-             
          free exchange because stock redemptions are taxable under section           

               7 Sec. 351(a) read:                                                    
               SEC. 351(a) No gain or loss shall be recognized if                     
               property is transferred to a corporation by one or more                
               persons solely in exchange for stock (or securities) in                
               such corporation and immediately after the exchange                    
               such person or persons are in control (as defined in                   
               section 368(c)) of the corporation.                                    
          Sec. 351 was amended in 1989 to provide that securities could no            
          longer be received tax-free under the provision.  See Omnibus               
          Budget Reconciliation Act of 1989, Pub. L. 101-239, sec. 7203(a),           
          103 Stat. 2106, 2333.                                                       

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