Northern Telecom Inc. & Subsidiaries - Page 6




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          carried out and that petitioner must now accept the tax                     
          consequences of that choice.  According to respondent, his                  
          “argument stems solely from his legal proposition that the                  
          transactional documents show that * * * [the subsidiary] did not            
          purchase the system from * * * [petitioner] within the meaning of           
          Treas. Reg. sec. 1.1502-13(a)(2).”                                          
               Petitioner argues that the transactions in question were               
          intercompany transactions under section 1.1502-13(a)(1)(i),                 
          Income Tax Regs., because the subsidiary obtained, from the                 
          third-party customer, the right to acquire the systems directly             
          from petitioner before any sale of the telephone systems could              
          occur pursuant to the purchase agreements.                                  
               Pursuant to section 1.1502-13(c)(1)(i), Income Tax Regs.,              
          gain or loss that is recognized on the sale of property in a                
          qualifying deferred intercompany transaction between corporations           
          who are members of the same consolidated group shall be deferred            
          by the selling member.  See Textron Inc. v. Commissioner,                   
          115 T.C. 104, 110 (2000).  Generally, the gain or loss is                   
          deferred until the occurrence of a triggering event, such as a              
          disposition of the property in a subsequent transaction outside             
          the consolidated group or depreciation allowed to a member of the           
          consolidated group with respect to the property.  The policy                
          behind the deferment rule is that a consolidated group should be            
          viewed as a single taxable enterprise.  Thus, the tax liability             





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