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4. Whether the AVCO Stock Was “Property”
Deferral under section 1.1502-14(d)(4), Income Tax Regs., is
required only if the obligation is received by a member in
exchange for property. See sec. 1.1502-14(d)(4)(i)(a), Income
Tax Regs. The term “property” is undefined in the regulations.
The parties agree that Paul Revere received the AVCO note in
a redemption satisfying the requirements of section 302.
Petitioner argues that because stock of the distributing
corporation is not considered property in a section 302
transaction, the reference in section 1.1502-14(d)(4), Income Tax
Regs., to “property” excludes the AVCO stock given up by Paul
Revere in the stock redemption.10 Petitioner further argues that
this reading is consistent with the economic substance of the
transaction because this would permit petitioner to recognize and
take into account the substantial economic loss that Paul Revere
realized in the redemptions.
The pre-1966 consolidated return regulations deferred to
Code definitions when a word used in the regulations was not
specifically otherwise defined.11 See Foster v. Commissioner,
10Sec. 317(a) provides: “For purposes of this part * * *
[secs. 301 through 318], ‘property’ means money, securities, and
any other property; except that such term does not include stock
in the corporation making the distribution (or rights to acquire
such stock).”
11T.D. 6894, 1966-2 C.B. 362, promulgated new consolidated
return regulations under sec. 1502 of the 1954 Code. The new
(continued...)
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