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Generally, a corporation issuing its own stock in exchange
for property has a basis in the property equal to the fair market
value of the stock issued in exchange for the property. Sec.
1012; Simmonds Precision Prods. v. Commissioner, 75 T.C. 103, 115
(1980). Expenses incurred in the transaction are also properly
included in basis. Sec. 1016(a).5
We applied this general rule in the similar situation
presented in International Telephone & Telegraph v. Commissioner,
supra, wherein we held the debentures had a basis to ITT equal to
the value of the ITT stock for which they were exchanged, for
purposes of applying a then-existing consolidated return
regulation. ITT Corp. v. United States, 963 F.2d at 565-566;
Bittker & Eustice, Federal Income Taxation of Corporations and
Shareholders, sec. 3.12[2], at 3-61 n.270 (6th ed. 1994). Our
application of the regulation produced the conclusion that the
subsidiaries, not ITT, were entitled to the losses. See
International Telephone & Telegraph v. Commissioner, 77 T.C. at
80. The issue of ITT's basis was presented to the court in terms
of the Government's contention that the exchange of ITT's stock
extinguished the obligation of the subsidiaries to redeem the
debentures so that the entire fair market value of the ITT stock
constituted a contribution by ITT to the capital of the
5 The parties do not dispute that $6,242 payments for fractional
shares and $288,769 expenses, see supra p. 16, should be included
in basis.
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