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On these facts, it is clear that the Mexican Government, as
a result of and in return for its participation in this
transaction and for the "excess value" it provided, received
direct, specific, and significant economic benefits that related
primarily to its perilous foreign exchange position.
As we said in Federated Dept. Stores v. Commissioner, 51
T.C. 500, 519 (1968), affd. 426 F.2d 417 (6th Cir. 1970), tax-
free capital contribution treatment under section 118 is
available where the "only benefit" anticipated and received by
the governmental entity making the "contribution" constitutes an
indirect civic benefit such as anticipated increased business.
In Brown Shoe Co. v. Commissioner, 339 U.S. 583 (1950),
contributions or payments by a governmental entity to assist a
taxpayer in financing construction of a factory were not made in
exchange for, nor accompanied by, extinguishment of the
governmental entity's million dollar debt obligation.
Perhaps, if the Mexican Government merely had transferred
the Mexican pesos to Procesos in exchange for petitioner's
commitment to use the pesos to construct a plant in Mexico,
receipt of the pesos would qualify under section 118 as a tax-
free contribution of capital. The Mexican Government, however,
in the transaction before us, did not provide the pesos merely in
exchange for a commitment to construct a plant in Mexico. It
also received cancellation of its US$1,200,000 debt obligation
without using any U.S. dollars, and the pesos that it provided
remained in Mexico. The surrender of the debt constitutes a
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