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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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Last modified: May 25, 2011