clearly satisfy the continuing trade or business requirement. However, after the transaction in question, petitioner no longer had any interest in its former glass business; LOF Glass operated as a subsidiary of Pilkington Holdings. Thus, if section 47 were the only provision involved in this case, this lack of a retained interest would be fatal to petitioner's position herein. Blevins v. Commissioner, 61 T.C. 547 (1974); Aboussie v. Commissioner, 60 T.C. 549 (1973), affd. without published opinion 504 F.2d 758 (5th Cir. 1974); Soares v. Commissioner, 50 T.C. 909 (1968); Purvis v. United States, 73-1 USTC par. 9157 (N.D. Ga. 1972).

However, the transactions herein took place in the consolidated return context, which provides a different frame of reference. Paragraph (f) of section 1.1502-3, Income Tax Regs., deals with early dispositions of section 38 assets of a member of a consolidated group; subparagraph (2) of paragraph (f). provides:

(2)*** a transfer of section 38 property from one member of the group to another member of such group during a consolidated return year shall not be treated as a disposition or cessation within the meaning of section 47(a)(1). If such section 38 property is disposed of, or otherwise ceases to be section 38 property *** before the close of the estimated useful life * * *, then section 47(a)(1) or (2) shall apply * * *

Subparagraph (3) of paragraph (f) provides:

(3) Examples. The provisions of this paragraph may be illustrated by the following examples:

Example (1). P, S, and T file a consolidated return for calendar year 1967. In such year S places in service section 38 property having an estimated useful life of more than 8 years. In 1968, P, S, and T file a consolidated return, and in such year S sells such property to T. Such sale will not cause section 47(a)(1) to apply.

*

Example (3). Assume the same facts as in example (1), except that P, S, and T continue to file consolidated returns through 1971 and in such year T disposes of the property to individual A. Section 47(a)(1) will apply to the group ***

Example (5). Assume the same facts as in example (1), except that in 1969, P sells all the stock of T to a third party. Such sale will not cause section 47(a)(1) to apply.

It is clear that the mere transfer of section 38 assets within a consolidated group does not trigger recapture. Sec. 1.1502-3(f)(2), Income Tax Regs.; see also sec. 47(b); Tandy Corp. v. Commissioner, 92 T.C. 1165 (1989); sec. 1.47-3(a), Income Tax Regs.

It is equally clear from Example (3) of section 1.1502-3, Income Tax Regs., that a transfer of the section 38 assets by LOF Glass, Inc., to Pilkington Holdings would have triggered the recapture of the investment tax credit. In the same vein, the language of Example (5) without more would dictate that the transfer of the stock of LOF Glass, Inc., to Pilkington Holdings would not trigger the recapture of such credit. In point of fact, the application of Example (5) to the instant case is affected by a revenue ruling and the opinions of two Courts of Appeals approving that ruling. In order to facilitate an understanding of the positions of the parties and our views in respect thereto, we shall first discuss the ruling and the two Courts of Appeals opinions.

In Rev. Rul. 82-20, 1982-1 C.B. 6, section 38 assets were, pursuant to a prearranged plan, transferred by the parent corporation to a subsidiary within a consolidated group in exchange for stock of the subsidiary. Immediately thereafter, the stock of the subsidiary was distributed to one of the two shareholders in exchange for his stock in the parent. It was assumed that the subsidiary would continue to use the section 38 assets in the same trade or business. Although the ruling recognized that the transactions qualified under sections 355(c)(1) and 368(a)(1)(D), it held that the ITC recapture provision of section 47(a)(1) applied on the ground that there was a planned transfer of the property outside the group. Without making any reference to Example (5), the ruling rea

sons:

Although section 1.1502–3(f)(2)(i) of the regulations creates an exception for transfers of section 38 property between members of a consolidated group that would otherwise be dispositions under section 47(a)(1), the exception is premised on the assumption that the property is remaining within the consolidated group. When there is no intention at the time of transfer to keep the property within the consolidated group, the transaction should be viewed as a whole and not as separate individual transactions. * * * [Rev. Rul. 82-20, 1982-1 C.B. at 7.]

A factual situation similar to that involved herein was subjected to scrutiny by this Court in Walt Disney Inc. v.

Commissioner, 97 T.C. 221 (1991), revd. 4 F.3d 735 (9th Cir. 1993). In holding that there was no ITC recapture upon the transfer of the shares of a subsidiary out of the consolidated group, we rejected respondent's argument that Example (5) was premised on the section 38 assets' remaining in the consolidated group and that there was no intention to observe this condition at the time the plans resulting in the transfer of the section 38 assets outside the consolidated group in Walt Disney Inc. were formulated. In so doing, we stated:

Although the example (5) stock sale occurs in the year following the sale of the property within the affiliated group, there is nothing in section 1.1502-3(f)(2)(i) and (3), Income Tax Regs., requiring a minimum waiting period. Indeed, as little as a 1-day wait would be literally consistent with the examples in the regulation: the sale from S to T in example (1) could occur on December 31, 1968, and the sale of the S [T] stock out of the affiliated group in example (5) could occur on January 1, 1969. Nor is there any express requirement that the idea for the stock transfer arise after the sale of the property within the affiliated group. Thus, respondent's contention that the regulation is premised on the property remaining in the affiliated group is not apparent from the regulation itself. [Walt Disney Inc. v. Commissioner, 97 T.C. at 228.]

Based upon this analysis, we held that the regulation controlled, stating: "When the authority to prescribe legislative regulations exists, this Court is not inclined to interfere if the regulations as written support the taxpayer's position.” Id. We adopted this view even though an “unwarranted benefit to the taxpayer" might exist (id. at 229) and restated the position we had taken in Woods Investment Co. v. Commissioner, 85 T.C. 274, 281-282 (1985), that if respondent were dissatisfied with the import of a regulation, she should use her broad powers to amend the regulation and not look to the courts to do it for her. Although we made no specific reference to Rev. Rul. 82-20, supra, it is clear that we rejected its reasoning by adhering to Example (5). Indeed, we reinforced such rejection by a lengthy discussion and rejection of the role of the so-called step transaction doctrine upon which Rev. Rul. 82-20, supra, rested. See Walt Disney Inc. v. Commissioner, 97 T.C. at 231-236; see also Tandy Corp. v. Commissioner, supra, wherein we rejected the application of the step transaction doctrine to the issue of an ITC recapture in a nonconsolidated return situation.

The next development in the scenario involved herein is the decision of the Court of Appeals for the Second Circuit in Salomon, Inc. v. United States, 976 F.2d 837 (2d Cir. 1992). A factual situation substantially similar to that involved herein and in Walt Disney Inc. v. Commissioner, supra, confronted the Court of Appeals in Salomon. In deciding the case in favor of the Government, the Court of Appeals for the Second Circuit declared that the fact that, in Example (5), "the asset transfer occurs in one year (1968) and the spinoff in the next year (1969)", Salomon, Inc. v. United States, supra at 842, constituted a significant difference from the situation dealt with in Rev. Rul. 82-20, supra, and the Court of Appeals concluded:

The Revenue Ruling thus complements CRR Example 5 by dealing with transactions that occur rapidly and are intended at their onset to transfer section 38 property outside the consolidated group. The consolidated return regulations state that "[t]he Internal Revenue Code, or other law, shall be applicable to the group to the extent the regulations do not exclude its application." Treas. Reg. § 1.1502-80 (emphasis added). Revenue Ruling 82-20 is within the ambit of such "other law." We accordingly believe that the two rulings are not in conflict, and may consistently be read together. Judge Freeh did not err when he viewed the two rulings as alternatives and then chose Revenue Ruling 82-20 based on EMC's intention "immediately" to spin-off EC following the asset transfer. [Salomon, Inc. v. United States, 976 F.2d at 842-843.]

Having thus adopted the Government's position based upon its conclusion that Rev. Rul. 82-20, supra, was reasonable and consistent with prevailing law, the Court of Appeals for the Second Circuit declined to discuss whether the step transaction doctrine as such would, in any event, apply. Salomon, Inc. v. United States, supra at 843-844.

The final development in the scenario is the reversal of our decision in Walt Disney Inc. v. Commissioner, supra, by the Court of Appeals for the Ninth Circuit. Relying heavily upon Salomon, Inc. v. United States, supra, the Court of Appeals for the Ninth Circuit also concluded that Rev. Rul. 82-20, supra, and Example (5) were consistent and agreed with the Court of Appeals for the Second Circuit, with the further comment that Rev. Rul. 82–20 qualified as “other law” under section 1.1502-80, Income Tax Regs. Walt Disney Inc. v. Commissioner, 4 F.3d at 741 n.10. The Court of Appeals for

the Ninth Circuit made no reference to the step transaction doctrine.

Against the foregoing background, we proceed to consider the positions of the parties. Relying on the position we took in Walt Disney Inc. v. Commissioner, supra, petitioner contends that the regulations, section 1.1502–3(f)(2) and (3), and Example (5) in particular, Income Tax Regs., are dispositive and that the step transaction doctrine has no application herein. Respondent, relying on Rev. Rul. 82-20, supra, and the status accorded it by the Courts of Appeals for the Second and Ninth Circuits in Salomon, Inc. v. United States, supra, and Walt Disney Inc. v. Commissioner, supra, argues in effect that Rev. Rul. 82-20, supra, operates independently of Example (5) and should control and that, in any event, the application of the step transaction doctrine should result in the recapture by petitioner of the investment tax credit. We agree with petitioner.

With all due respect, we disagree with both the result and the reasoning of the Courts of Appeals and adhere to the position we took in Walt Disney Inc. v. Commissioner, 97 T.C. 221 (1991). We think that the fact that the transfer of the assets and the transfer of the stock occurred in the same, rather than different, taxable years does not provide a meaningful basis for distinguishing Rev. Rul. 82-20, supra, from Example (5) of the regulations. Indeed, as we have already pointed out, see supra p. 74, we specifically refused to give weight to this element in Walt Disney Inc. v. Commissioner, supra. Our continued adherence to this point of view is reinforced by the fact that the time span element is also present in Example (3) where the section 38 assets are transferred in a different taxable year and the recapture of the investment tax credit is mandated. The contrast between these two examples highlights the fact that it is what is transferred and not when the transfer occurs that is significant. Indeed, if timing was a significant element in Example (5), one would think that respondent would have referred to Example (5) and this element in Rev. Rul. 82-20, supra, and thus provided the tax-paying public with notice of respondent's restrictive interpretation of Example (5) rather than leaving such interpretation to unarticulated alleged inference. We do not think the "assumption" referred to in