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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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