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It is well settled that the heading of a section does not
limit the plain meaning of the text. See Brotherhood of R.R.
Trainmen v. Baltimore & O.R. Co., 331 U.S. 519, 529 (1947);
Warren v. Commissioner, 114 T.C. 343, 347 (2000). The text of
section 1.1502-14(d)(4), Income Tax Regs., requires only that an
obligation be received in exchange for property and that the
basis of the obligation be determined by reference to the basis
of the property exchanged. Paul Revere received the AVCO note in
exchange for its AVCO stock, and its basis in the note was
determined by reference to its basis in the stock. See sec.
1.1502-31(b)(2)(ii), Income Tax Regs. Thus, we find the stock
redemption to be a qualifying exchange covered by the provision.8
3. Whether Paul Revere Was a “Nonmember”
Section 1.1502-14(d)(4), Income Tax Regs., applies only if
the obligation at issue “has never been held by a nonmember”.
Sec. 1.1502-14(d)(4)(i)(c), Income Tax Regs. Section 1.1502-
14(d)(4)(i)(c), Income Tax Regs., does not specify how or when a
corporation’s status as a member or nonmember is to be
determined. Petitioner focuses on the word “nonmember” and
concludes that the deferral of Paul Revere’s loss ended in 1987,
8 Even if the heading did limit the scope of the provision,
the AVCO group recognized no gain or loss on the stock redemption
because the redemption was governed by sec. 1.1502-14(b)(1),
Income Tax Regs. The fact that the redemption would have been
taxable under sec. 302 had AVCO and Paul Revere not been members
of the same consolidated group is immaterial.
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