Ambase Corporation, f.k.a. The Home Group Inc. - Page 44




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          investment of the cash it received from City in the notes of HGI            
          conforms to Rev. Rul. 69-377, supra, and the cycling back of that           
          cash from HGI to City is not inconsistent with the principles               
          revealed in the amplification of that ruling in Rev. Rul. 72-416,           
          supra.  The principles of these and the other listed rulings                
          recognize highly artificial transactions with elements of                   
          circularity.  This was the administrative position of the                   
          Commissioner with respect to recognizing the debt of finance                
          subsidiaries as their own during the pendency of the Interest               
          Equalization Tax, and in DEFRA section 127(g)(3)(B) Congress                
          adopted that position as the standard for extending relief from             
          withholding tax obligations.                                                
               This interpretation of the phrase “requirements which are              
          based on the principles set forth in Revenue Rulings 69-501, 69-            
          377, 70-645, and 73-110" as used in DEFRA section 127(g)(3)(B) is           
          consistent with the legislative history of that section, which              
          indicates that Congress intended broad relief under the provision           

               22(...continued)                                                       
          to be disregarded.  Respondent’s assertions notwithstanding, HGI            
          did receive consideration for its notes; namely, cash.                      
          Respondent’s argument concerning lack of consideration comes down           
          to the claim that because HGI immediately (and as prearranged)              
          transferred the cash received as consideration to City as a                 
          dividend, HGI’s receipt of the cash should be ignored, resulting            
          in a lack of consideration for the notes.  We think this argument           
          is merely a variant of the circular cash-flow critique, and we              
          reject it for the same reason:  under the principles of the                 
          listed rulings, transactions designed to capitalize a finance               
          subsidiary are not disregarded because they contain elements of             
          circularity.                                                                





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