Textron Inc. and Subsidiary Companies - Page 18

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          sec. 1502.  Though Paul Revere may have realized a genuine                  
          economic loss on a separate entity basis, recognition of that               
          loss is deferred by reason of petitioner’s election to be bound             
          by the consolidated return regulations.                                     
          5.   Whether the Loss Was Restored Upon Liquidation of Paul                 
               As a final matter, we note that the liquidation of Paul                
          Revere in 1987 did not restore Paul Revere’s loss on the note               
          redemption.  A member’s gain or loss deferred by section 1.1502-            
          14(d)(4), Income Tax Regs., is restored immediately before the              
          earlier of the time:  (1) When the deferring member (in this                
          case, Paul Revere) ceases to be a member, or (2) when the stock             
          of the debtor member (in this case, AVCO) is considered to be               
          disposed of by any member.  See sec. 1.1502-14(d)(4)(ii), Income.           
          Tax Regs.  However, in the event the deferring member ceases to             
          be a member because its assets are acquired by another member of            
          the group in a transaction described in section 381(a) (such as a           
          section 332 liquidation), the gain or loss is not so restored.              
          See sec. 1.1502-14(e)(2), Income Tax Regs.  Paul Revere ceased to           
          be a member of the Textron Group when it liquidated in a section            
          332 transaction.  Thus, the liquidation was not a restoration               
               In reaching our holdings herein, we have considered all                
          arguments made by the parties, and, to the extent not discussed             
          above, we find those arguments to be irrelevant or without merit.           

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