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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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