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and wanted to delay repayment of the note to take advantage of
the favorable fluctuations in the currency exchange rates.
Respondent failed to adequately refute either purpose. See Frank
Lyon Co. v. United States, 435 U.S. 561, 583-584 (1978) (genuine
multiple-party transactions with economic substance compelled by
business realities, imbued with tax-independent considerations,
and shaped not solely by tax avoidance features should be
respected for tax purposes); IRS v. CM Holdings, Inc., supra at
102-103.
C. Deferral of Foreign Exchange Gain
Section 1.1502-13(a)(2), Income Tax Regs., provides that
members of a consolidated group can generally defer the
recognition of gain relating to intercompany transactions until
entering into a transaction with a nonmember. In 1996, CIC could
have retired the note by paying $49,784,881 to Holdings. Upon
repayment of the note, CIC would have recognized a $4,188,791
foreign exchange gain (i.e., on June 28, 1996, CIC could have
repaid the principal balance of �29,498,525 with $45,811,209
rather than $50 million). See sec. 988(a). This gain, however,
was deferred, until 1997, as a result of the CIC/CIHI
transaction. Consistent with our holding, respondent was not
authorized, pursuant to section 482 or the economic substance
doctrine, to restructure the assumption as the repayment of the
loan by CIC, a member of petitioner’s consolidated group, to
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