- 18 -
Petitioners recognize that the issuance of Metals' shares in
satisfaction of its conversion obligation under the debentures
does not give rise to a loss. Sec. 1032(a);3 National Can Corp.
v. United States, 687 F.2d 1107, 1116 (7th Cir. 1982).
Petitioners argue, however, that: (1) When Metals exchanged the
debentures acquired as a result of the conversions, they became
capital assets in its hands and acquired a basis equal to the
fair market value of its shares issued to the debenture holders;
and (2) when RMECC redeemed the debentures, Metals had a capital
loss under section 165(f) equal to the excess of such value over
the redemption price paid to it by RMECC. Respondent counters
that: (1) The debentures did not survive the conversions with
the result that Metals suffered no loss on their redemption; and
(2) if the debentures did survive the conversions, the excess of
the fair market value of Metals' shares over the amount it
received on redemption, i.e., the principal, of the debentures
constituted a capital contribution to RMECC rather than a capital
loss under section 165(f). The burden is on petitioners to show
that they are entitled to the deduction. INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992).
3 Sec. 1032(a) provides in pertinent part: "No gain or loss
shall be recognized * * * on the receipt of money or other
property in exchange for stock (including Treasury stock) of such
corporation."
Page: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 NextLast modified: May 25, 2011