Reynolds Metals Company and Consolidated Subsidiaries - Page 1

                                   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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