Textron Inc. and Subsidiary Companies - Page 12

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          entitle the group to take into account the loss from that                   
          intercompany transaction.                                                   
               For purposes of section 1.1502-14(d)(4)(i), Income Tax                 
          Regs., we determine the status of Paul Revere as a member or                
          “nonmember” of the Textron consolidated group at the time of                
          redemption of the note.  We interpret the word “nonmember” in               
          that provision of the regulations as applying to cases where a              
          member of a consolidated group cancels or redeems an obligation             
          that is held, or was held, by a corporation that is a nonmember             
          at the time of cancellation or redemption.  We do not read                  
          section 1.1502-14(d)(4)(i), Income Tax Regs., as applying to                
          cases such as we have here where a corporation/noteholder was               
          acquired by and became a member of the consolidated group before            
          the note’s redemption or cancellation.                                      
               Our reading is supported by consideration of the result that           
          would have occurred had AVCO redeemed Paul Revere’s AVCO stock in           
          1977 for cash.  In that case, Paul Revere’s loss on the                     
          redemption would have been deferred under section 1.1502-                   
          14(b)(2)(iii), Income Tax Regs., and would have continued to be             
          deferred as of the end of the 1987 taxable year even though AVCO            
          and Paul Revere were then members of the Textron group rather               
          than the AVCO group.  See secs. 1.1502-13(f), 1.1502-14(b)(3),              
          (f), Income Tax Regs. (termination of a consolidated group due to           
          the acquisition of its common parent by a nonmember does not                

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