105 T.C. No. 20
UNITED STATES TAX COURT
REYNOLDS METALS COMPANY AND CONSOLIDATED SUBSIDIARIES,
Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24939-93. Filed October 16, 1995.
In 1968, S, P's wholly owned subsidiary, issued
debentures, convertible into shares of common stock of
P. In 1987, S called the debentures for redemption,
thereby prompting most debenture holders to convert
their debentures into P's common stock. The converted
debentures were subsequently redeemed by S for cash in
an amount equal to the principal of the debentures with
accrued interest. P and its consolidated subsidiaries
claimed a capital loss deduction under sec. 165(f),
I.R.C., in the amount by which the fair market value of
P's stock issued in the exchange exceeded the principal
of the exchanged debentures. Held, P is not entitled
to a capital loss deduction. International Telephone &
Telegraph v. Commissioner, 77 T.C. 60 (1981),
supplemented by 77 T.C. 1367, affd. per curiam 704 F.2d
252 (2d Cir. 1983), distinguished.
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