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respondent contends that Rev. Rul. 69-377, 1969-2 C.B. 231,
stands for the proposition that a finance subsidiary’s equity
“must exist not only in form but also in substance”, we think the
capitalization of the finance subsidiary in that ruling is itself
highly artificial and formalistic. The capitalization of the
finance subsidiary with cash was entirely transitory; that is,
the finance subsidiary’s exchange of the parent’s cash for the
securities of affiliates appears to have been contemplated from
the outset. The finance subsidiary’s exchange of the cash
capital contribution for the affiliates’ securities did not
affect the ruling’s conclusion. Also, it was the finance
subsidiary’s transitorily held cash that was counted for purposes
of the subsidiary’s meeting the 5-to-1 debt/equity ratio in the
ruling; the stock or debt of the affiliates for which the finance
subsidiary exchanged the cash was not evaluated for this purpose.
Indeed, where the cash was exchanged for affiliates’ stock, it is
difficult to see how the stock could have been counted for this
purpose because the stock was not publicly traded and presumably
had no readily ascertainable value. Cf. Rev. Rul. 72-416, supra
(parent’s publicly traded stock, because it has a readily
ascertainable value, may be substituted for cash in the
capitalization of a finance subsidiary). Further, the ruling
does not address the consequences for the debt/equity ratio
requirement in the event the value of the affiliates’ stock
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