- 18 -
$50 million to CIC. Thus, the Holdings/CIC transaction and the
CIC/CIHI transaction must be analyzed separately. See sec.
1.482-1(f)(2)(i), Income Tax Regs. (stating transactions will be
analyzed on a transaction by transaction basis unless “such
transactions, taken as a whole, are so interrelated that
consideration of multiple transactions is the most reliable means
of determining the arm’s length consideration for the controlled
transactions”).
1. Holdings/CIC Transaction
In 1988, Holdings lent �29,498,525 (i.e., $50 million) to
CIC at an 11.5-percent interest rate. Both parties agree that,
at the time of the loan, 11.5 percent was an arm’s-length
interest rate. Thus, section 1.482-2(a)(1), Income Tax Regs., is
inapplicable to the Holdings/CIC transaction.
2. CIC/CIHI Transaction
CIC and CIHI, petitioner’s subsidiaries, are members of the
same consolidated group. In 1996, CIC and CIHI executed an
assumption agreement in which CIHI agreed to assume all of CIC’s
obligations, pursuant to the note, in exchange for $49,784,881.
Both parties agree that, at the time of the transfer, CIHI could
have borrowed the $49,784,881 at an arm’s-length rate of 8,
rather than the 11.5, percent. Pursuant to the assumption
agreement, if CIHI failed to make any of its payments, CIC was
entitled to seek legal recourse against CIHI. Section 1.482-
Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NextLast modified: May 25, 2011