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Even if we were to accept petitioners' assertion as to
Metals' objective in entering into the arrangements for and
effecting the conversion of the RMECC debentures, the excess
value of the Metals' shares would, at best, constitute a capital
expenditure without a determinable useful life and would
therefore not represent a deductible capital loss. INDOPCO, Inc.
v. Commissioner, 503 U.S. 79, 84 (1992).
The long and the short of the matter is that Metals'
obligation to convert and its implementation of that obligation
stemmed from its status as the sole shareholder of RMECC and has
a strong "shareholder/investor aura". Centel Communications v.
Commissioner, 92 T.C. 612, 637 (1989), affd. 920 F.2d 1335 (7th
Cir. 1990) (taxpayer-corporation executed indemnification and
subordination agreements in favor of corporation of which it was
a shareholder). The fact of the matter is that the only thing of
value that Metals acquired by the conversion was the right to
obtain payment from RMECC of the principal amount of the
debentures. Given the further fact that the holder of a
convertible debenture will usually exercise his conversion right
only where the value of the stock to be received on the
conversion exceeds the amount of the debentures, see Honeywell
Inc. v. Commissioner, 87 T.C. at 642, it is apparent that Metals
had a guaranteed loss from the conversions.
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