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possibly have been a sale of property ‘which does not give rise
to any income’ because those assets were components of an active,
ongoing commercial enterprise, which did give rise to income.”
Therefore, petitioner argues that, because the requirement in
section 1.954-2(e)(3)(ii) through (iv), Income Tax Regs., that
such assets be used in the seller’s trade or business goes beyond
the narrow statutory mandate that such assets simply not be
property “which does not give rise to any income”, that
regulation is invalid.
B. Respondent’s Arguments
Respondent argues that the deemed sale of the H&C operating
assets was not a sale of property used or held for use in Dover
UK’s business. Therefore, respondent continues, that property
was not excluded from the definition of property “which does not
give rise to any income” pursuant to section 1.954-2(e)(3)(ii)
through (iv), Income Tax Regs., and its deemed sale by Dover UK
gave rise to FPHCI taxable to petitioner. Secs. 951(a)(1)(A)(i),
952(a)(2), 954(a)(1), (c)(1)(B)(iii).
Based primarily on the statutory language and legislative
history of section 954(c)(1)(B), respondent also rejects
petitioner’s argument that section 1.954-2(e)(3)(ii) through
(iv), Income Tax Regs., is invalid.
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