[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1312-6]

[Page 635]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1312-6  Correlative deductions and credits for certain related 
corporations.

    (a) Paragraph (6) of section 1312 applies if the determination 
allows or disallows a deduction (including a credit) to a corporation, 
and if a correlative deduction or credit has been erroneously allowed, 
omitted, or disallowed in respect of a related taxpayer described in 
section 1313(c)(7).
    (b) The application of paragraph (a) of this section may be 
illustrated by the following examples:

    Example 1. X Corporation is a wholly-owned subsidiary of Y 
Corporation. In 1955, X Corporation paid $5,000 to Y Corporation and 
claimed an interest deduction for this amount in its return for 1955. Y 
Corporation included this amount in its gross income for 1955. In 1958, 
the Commissioner asserted a deficiency against X Corporation for 1955, 
contending that the deduction for interest paid should be disallowed on 
the ground that the payment was in reality the payment of a dividend to 
Y Corporation. X Corporation contested the deficiency, and ultimately in 
June 1959, a final decision of the Tax Court sustained the Commissioner. 
Since the amount of the payment is a dividend, Y Corporation should have 
been allowed for 1955 the corporate dividends-received deduction under 
section 243 with respect to such payment. However, the Tax Court's 
decision sustaining the deficiency against X Corporation occurred after 
the expiration of the period for filing claim for refund by Y 
Corporation for 1955. An adjustment is authorized with respect to Y 
Corporation for 1955.
    Example 2. Assume the same facts as in example (1) except that, 
instead of the Commissioner asserting a deficiency against X Corporation 
for 1955, Y Corporation filed a claim for refund in 1958, alleging that 
the payment received in 1955 from X Corporation was in reality a 
dividend to which the corporate dividends-received deduction (section 
243) applies. The Commissioner denied the claim, and ultimately in June 
1959, the district court, in a final decision, sustained Y Corporation. 
Since the amount of the payment is a dividend, X Corporation should not 
have been allowed an interest deduction for the amount paid to Y 
Corporation. However, the district court's decision sustaining the claim 
for refund occurred after the expiration of the period of limitations 
for assessing a deficiency against X Corporation for the year 1955. An 
adjustment is authorized with respect to X Corporation's tax for 1955.

[T.D. 6617, 27 FR 10823, Nov. 7, 1962]