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and Woolford Realty Co. v. Rose, 286 U.S. 319 (1932)); cf.
Gottesman & Co. v. Commissioner, 77 T.C. 1149, 1156 (1981) (“to
the extent the consolidated return regulations do not mandate
different treatment, corporations filing consolidated returns are
to be treated as separate entities when applying other provisions
of the Code”). Nor do the consolidated return regulations, as
applicable here, change this result. Those regulations require
that Peoples calculate its net income separately from
Investments’ net income. See sec. 1.1502-11(a)(1), Income Tax
Regs. (stating that taxable income is calculated for an
affiliated group by taking into account the separate taxable
income of each member of the group). Respondent has not
identified, nor are we aware of, any provision in the
consolidated return regulations that would require the tax-exempt
obligations purchased and owned by Investments to be taken into
account in the calculation of Peoples’ interest expense
deduction. Nothing that we read in the statutes or in the
consolidated return regulations directs us to ignore the separate
existence of Investments and Peoples or otherwise to treat
Investments’ self-purchased tax-exempt obligations as owned by
Peoples for purposes of calculating the numerator as to Peoples.
Congress knew how to require a taxpayer to take into account
the assets of another taxpayer had Congress intended to include
respondent’s “look-through” approach in the applicable statutes.
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Last modified: March 27, 2008