-54-
exchange of blocked deposits for cruzados. Accordingly, respondent
claims we should hold that petitioner's exchange of blocked assets
for cruzados created no loss because the basis of the blocked
assets and the fair market value of the cruzados were identical.
K. Petitioner's Arguments
At trial and on brief, petitioner contends that the conversion
produced a $7,033,136 loss. Petitioner argues that it exchanged
$12,577,136 of blocked deposits, which had a secondary market value
of $7,923,596, for Brazilian stock worth $5,544,000. Petitioner
first argues that Rev. Rul. 87-124, supra, supports its position
rather than that of respondent. Petitioner claims that because the
value of the stock is presumed to equal the value of the local
currency given in exchange, petitioner is justified in looking to
the fair market value of the stock it received in determining the
extent of its loss.
Petitioner also argues that we should not follow the analysis
and reasoning of G.M. Trading because the facts therein are
distinguishable: (1) Petitioner entered into the debt-equity
conversion as a means of cutting its losses on a deteriorating
investment, not as the first step in making a profitable new
investment, as in G.M. Trading; (2) the cruzados petitioner
received were used to acquire stock in a Brazilian company, while
the pesos the taxpayer received in G.M. Trading were used to
Page: Previous 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 NextLast modified: May 25, 2011