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before the target corporations were sold outside the consolidated
group. The parties agree that the cross-chain sales qualified as
section 3042 redemptions that must be tested for dividend
equivalency under section 302(b). The parties disagree, however,
regarding the result of that testing.
Respondent contends that each cross-chain sale by a target
corporation and the later sale of that target corporation outside
the consolidated group were parts of a firm, fixed, and clearly
integrated plan to completely terminate the target corporation’s
actual and constructive ownership of the issuing corporations.
Respondent argues, therefore, that the cross-chain sales
qualified as redemptions in complete termination of the target
corporations’ interest in the issuing corporations under section
302(b)(3), and must be taxed as a distribution in exchange for
stock under section 302(a). Petitioner contends that each cross-
chain sale resulted in the receipt of a dividend by the selling
corporation under sections 302(d) and 301 equal to the gross sale
proceeds and that it was entitled, under the consolidated return
regulations, to increase its basis in the target corporations’
stock by the amount of the dividend.3 Petitioner’s claim to
2All section references are to the Internal Revenue Code in
effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure. Monetary amounts are
rounded to the nearest dollar.
3Under the consolidated return investment adjustment
(continued...)
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