-56-
secondary market, which represents a ceiling on the value of
petitioner's PCC equity interest.34
L. Law and Analysis
The loss from a sale of property is the excess of the
property's adjusted basis over the amount realized. Sec. 1001(a).
An equal exchange results in neither gain nor loss. Because debt
is considered property in the hands of the holder, an exchange of
debt for other property is usually treated as a section 1001
taxable exchange. Cottage Sav. Association v. Commissioner, 499
U.S. 554, 559 (1991); G.M. Trading Corp. v. Commissioner, 103 T.C.
at 67. Federal tax law principles require that foreign currency be
considered property. FNMA v. Commissioner, 100 T.C. 541, 582
(1993); sec. 1.1001-1(a), Income Tax Regs.
The step-transaction doctrine is a rule of substance over form
that treats a series of formally separate "steps" as a single
transaction if they are in substance integrated, interdependent,
and geared toward a specific result. Tandy Corp. v. Commissioner,
92 T.C 1165, 1171 (1989). The step-transaction doctrine is a
manifestation of the more general tax law principle that formal
distinctions cannot obscure the substance of a transaction. Id.
34 Respondent counters by arguing that the value of the
blocked deposits on the secondary market is irrelevant because
petitioner chose to partake in a debt-equity conversion rather
than sell the debt on the secondary market.
Page: Previous 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 NextLast modified: May 25, 2011