Reynolds Metals Company and Consolidated Subsidiaries - Page 32

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               To accede to petitioners' blandishments and hold that Metals            
          is entitled to a capital loss would, in effect, be the equivalent            
          of allowing a loss to which Metals was not entitled on the                   
          conversion, under section 1032, albeit as a capital loss rather              
          than an ordinary loss, or the equivalent of a bond premium                   
          amortization deduction disallowed by section 249.                            
               We are not prepared to accept such an eccentric result.  See            
          Darby v. Commissioner, 97 T.C. 51, 68 (1991).  Petitioners assert            
          that respondent has not pointed to any specific provision of the             
          Internal Revenue Code that disallows the claimed capital loss.               
          The simple answer to that assertion is that deductions are a                 
          matter of legislative grace, and it was petitioners' burden to               
          demonstrate that the claimed capital loss was allowable under the            
          Internal Revenue Code.  INDOPCO, Inc. v. Commissioner, supra.                
          They simply have not carried that burden.                                    
               We hold that petitioners are not entitled to deduct a                   
          capital loss for the amount of the excess of the fair market                 
          value of Metals' shares utilized in the conversion over the                  
          principal of the RMECC debentures.  Such excess presumably will              
          become part of Metals' basis in its RMECC shares.9                           


          9  The portion of the expenses of the conversion (and amounts                
          paid for fractional shares), see supra note 5, represented by the            
          fraction whose numerator is the principal amount of the debenture            
          and whose denominator is the total value of Metals' stock issued             
          on the conversions, would appear to be an additional capital loss            
          which can be allocated to the value of the stock representing                
          such principal.                                                              




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