Textron Inc. and Subsidiary Companies - Page 17

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          redemption to interpret section 1.1502-13(f)(1), Income Tax Regs.           
          Thus, respondent did not consider the two positions to be                   
          contradictory.  We are not aware that respondent has ever taken             
          the position, administratively or otherwise, that the definitions           
          found in section 317 are universally applicable to interpret the            
          consolidated return regulations.                                            
               In any case, as stated above, had AVCO redeemed the stock              
          for cash, the gain or loss would have been deferred under section           
          1.1502-14(b)(2)(iii), Income Tax Regs.  Under petitioner’s                  
          interpretation, a consolidated taxpayer could elect to recognize            
          losses on the redemption of the stock between members at its                
          whim.  Instead of redeeming depreciated member stock with cash,             
          it could simply redeem the stock with debt and then retire the              
          debt.  We decline petitioner’s invitation to interpret an                   
          undefined term so as to achieve this anomalous result.                      
          Petitioner’s interpretation would undermine the structure of the            
          consolidated return regulations by treating as recognition events           
          what are purely intragroup transactions.                                    
               As to petitioner’s economic substance argument, the                    
          consolidated return regulations were promulgated under the                  
          congressional mandate of section 1502 to regulate the privilege             
          of filing consolidated returns.  Once an eligible group of                  
          corporations consents to consolidation both the taxpayer and the            
          Government are bound by the consolidated return regulations.  See           

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