opinion.
The Commissioner determined a $9,362.42 deficiency in income tax for the year 1945 as a result of disallowing a deduction in the amount of $18,607.29 which had been claimed by petitioner on a consolidated return as a bad debt from a subsidiary corporation. Petitioner now contends, in the alternative, that it is also entitled to the deduction as a “loss” with respect to its unrecouped investment in the stock of the subsidiary. The facts have been stipulated and are so found.
Petitioner, incorporated in Virginia in 1923, has its principal office in Washington, D. C. It filed a consolidated income tax return for the year 1945 with the collector of internal revenue, Baltimore, Maryland, on behalf of itself and two affiliates, including a wholly owned subsidiary, Atlantic Tie & Timber Company. Atlantic had ceased operations on August 1,1945, and was dissolved on November 9,1945.
*1121The deduction sought by petitioner is computed by the parties in a supplemental stipulation as follows:
Notes Receivable of Atlantic Tie and Timber Company held by peti-
tioner as of January 1, 1945-$43,000:00
Less: Payment received from Atlantic Tie and Timber Company by petitioner in October 1945_$16,000. 00
Balance_$27,000.00
Less: Assets received by petitioner upon liquidation of Atlantic Tie and Timber Company, November 9,1945- $2,224. 28
Balance___$24,775.72
Less: Losses reported in Consolidated Returns of petitioner:
1944_$19,023.29
1945_ $7,145.14
$26,168.43
Less:
Capital Stock Atlantic Tie and Timber Company_$20, 000. 00
- $6,168143
Bad Debt of Atlantic Tie and Timber Company due petitioner-$18,607.29
Atlantic had been engaged since 1936 in dealing in lumber and forest products in Georgia; it had its office in Savannah, Georgia, where it kept its own books and records. Petitioner’s business, prior to August 1, 1945, consisted of buying, some treating, and selling of lumber and forest products in states other than Georgia, and included the type of business transacted by Atlantic in Georgia. Petitioner’s operations in the southern states were managed from its Eichmond, Virginia, office. Simultaneously with Atlantic’s cessation of operations on August 1,1945, petitioner took leases on “yards” which until then had been leased to Atlantic in the Savannah, Statesboro, and McEae areas in Georgia. On or about August 1, 1945, petitioner applied for and obtained licenses, such as Atlantic previously had, for the purpose of buying and selling timber in Georgia. Also on August 1, 1945, petitioner hired the manager and several other persons who had been employed by Atlantic. After August 1,1945, petitioner’s business and operations included the same kind of business and operations in Georgia formerly conducted by Atlantic.
Petitioner seeks the claimed deduction either as a bad debt or as a loss of its investment in Atlantic’s capital stock. However, we are satisfied that the deduction is not allowable on either theory.
The filing of consolidated returns is a statutory privilege, and is explicitly conditioned upon the consent of the members of the affiliated group to certain regulations. Internal Eevenue Code, section *1122141.1 The pertinent provisions of the applicable regulations in this case are set forth in the margin.2
Eegulations under earlier statutory provisions had provided that intercompany accounts receivable or other obligations resulting from intercompany transactions could not be deducted as bad debts during a “consolidated return period”; and that term was defined to include any taxable year for which a consolidated return is made or is required. See articles 2 and 40 of Eegulations 75, 78, 89, 97, 102. However, section 23.40 (a) of Eegulations 104, applicable herein (see footnote 2), for the first time provided an exception to the general rule. It permits the deduction, subject to specified conditions, if the loss results “from a bona fide termination of the business and operations of such *1123other [the debtor] corporation, whether in liquidation or otherwise.” And the cognate provisions in section 23.37 of Regulations 104 (see footnote 2) dealing with recognition of gain or loss in consolidated returns upon distributions in liquidation of an affiliated corporation expressly provide :
When the business and operations of the liquidated member of the affiliated group are continued by another member of the group, it shall not be considered a bona fide termination of the business and operations of the liquidated member. * * *
We think the same criteria are applicable here, and as applied to the facts of this case, require that the bad debt deduction be disallowed. Certainly, petitioner, upon"whom the burden of proof rests, has failed to show that the business and operations of Atlantic were not continued by petitioner itself, and, indeed, the stipulation of facts strongly indicates the contrary.
Petitioner contends that section 23.40 of Regulations 104 is inapplicable to it because Atlantic was not a member of the affiliated group as of the last day of the taxable year or was not “liquidated” by the group during the taxable year. The contention is without merit. Atlantic was liquidated during the taxable year. It ceased operations on August 1, 1945, and was dissolved November 9, 1945. The supplemental stipulation of facts refers to an item of assets received by petitioner “upon liquidation” of Atlantic, November 9,1945.
We conclude that the Commissioner did not err in disallowing the claimed deduction as a bad debt. Like considerations, under section 23.37 of Regulations 104, similarly preclude the deduction as a “loss,” wholly apart from the fact that it might also be unavailable by reason of section 112 (b) (6) of the Code.
Reviewed by the Court.
Decision will he entered for the respondent.