Textron Inc. and Subsidiary Companies - Page 11

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          (canons of statutory construction apply to interpretation of                
          Treasury regulations); Whelan v. United States, 208 Ct. C1. 688,            
          529 F.2d 1000, 1002-1003 (1976) (canons of statutory construction           
          used to interpret administrative regulations).                              
               The consolidated return regulations are built on the premise           
          that members of a consolidated group are a single economic entity           
          with regard to intercompany transactions and distributions and              
          that resulting gains or losses are given effect only when the               
          transferred property, or stock of the transacting member, leaves            
          the consolidated group.  See also secs. 1.1502-13 & 1.1502-14,              
          Income Tax Regs.; see generally 3 Bittker & Lokken, Federal                 
          Taxation of Income, Estates and Gifts, par. 90.5, at 90-48 (2d              
          ed. 1991):                                                                  
               The basic concept underlying * * * [the consolidated                   
               return] provisions is that the consolidated group is * * * a           
               single taxable enterprise whose tax liability ought to be              
               based on its dealings with outsiders rather than on                    
               intragroup transactions.  This single taxpayer concept lies            
               at the heart of the treatment of intercompany transactions,            
               which, with some exceptions to prevent tax avoidance, are              
               eliminated in computing the group’s consolidated taxable               
          Petitioner’s interpretation of section 1.1502-14(d)(4)(i)(c),               
          Income Tax Regs., conflicts with this framework.  At the time               
          AVCO redeemed its note from Paul Revere, both were members of the           
          Textron group and both remained members as of the end of the 1987           
          taxable year.  There were no “dealings with outsiders” that would           

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