
    INTERNATIONAL TELEPHONE AND TELEGRAPH CORPORATION and Affiliated Companies, Petitioners-Appellees-Cross-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant-Cross-Appellee.
    Nos. 913, 1048, Dockets 82-4169, 82-4181.
    United States Court of Appeals, Second Circuit.
    Argued March 4, 1983.
    Decided March 31, 1983.
    
      Ernest J. Brown, Atty., Tax Div., Dept, of Justice, Washington, D.C. (Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Atty., Tax Div., Dept, of Justice, Washington, D.C., of counsel), for respondent-appellant-cross-appellee.
    Stephen D. Gardner, New York City (James S. Eustice, Robert A. Kagan, Kronish, Lieb, Shainswit, Weiner & Heilman, New York City, of counsel), for petitionersappellees-cross-appellants.
    Before FEINBERG, Chief Judge, TIMBERS and CARD AMONE, Circuit Judges.
   PER CURIAM:

This is an appeal and a cross-appeal from a decision of the United States Tax Court, Theodore Tannenwald, Chief Judge, concerning an alleged income tax deficiency of $885,064 for the taxable year 1965 assessed by the Commissioner of Internal Revenue against International Telephone and Telegraph Corporation and its affiliated companies (ITT Group). The Tax Court rejected the asserted deficiency, and held that there had been a tax overpayment by the consolidated ITT Group of $159,689.76 for 1965. The opinion and supplemental opinion of the Tax Court are reported at 77 T.C. 60 (1981) and 77 T.C. 1367 (1981) respectively.

On appeal the Commissioner asserts that the Tax Court erred in allowing the ITT Group loss deductions resulting from the retirement of convertible debentures. These debentures were originally issued by Aetna Finance Company and Avis, Inc. Subsequently Aetna and Avis were acquired by subsidiaries of ITT, which subsidiaries assumed the debt obligations on the outstanding debentures. ITT thereafter issued its own stock in exchange for some of the convertible debentures, most of which were then transferred to the applicable ITT subsidiaries for cancellation. The Commissioner urges that the debenture retirements were merely contributions by ITT to the capital of its subsidiaries, and that therefore the subsidiaries incurred no losses on the retirements of the debentures.

The ITT Group cross-appeals from that part of the Tax Court decision which held that certain operating expenses incurred by group members had to be ratably allocated between foreign and domestic source gross income in order to determine the Group’s 1965 foreign tax credit limitation.

The rationales given by the Tax Court to support its holdings are thorough and persuasive. We affirm, therefore, for the reasons stated in the opinion and supplemental opinion of Chief Judge Tannenwald.  