-57-
Like petitioner herein, the taxpayer in G.M. Trading argued
that its exchange of debt for foreign currency should be ignored
under the step transaction doctrine. The Court in G.M. Trading
rejected the taxpayer's argument in its Supplemental Opinion, as
follows:
a step in a series of transactions or in an
overall transaction that has a discrete
business purpose and a discrete economic
significance, and that appropriately triggers
an incident of Federal taxation, is not to be
disregarded. Further, the simultaneous nature
of a number of steps does not require all but
the first and the last (or "the start and
finish") to be ignored for Federal income tax
purposes. * * *
106 T.C. at 267.
We likewise refuse to apply the step transaction doctrine
herein. We agree with respondent that the substance of
petitioner's transaction was consistent with its form. The
Central Bank converted the full-face value of petitioner's debt,
plus accrued interest, into Cz$295,200,000 at the official
exchange rate without diminution or discount. MRC received the
cruzados from the Central Bank (exchanged at the official exchange
rate) and paid the cruzados to a third party (IFC) in exchange for
its 14.361-percent equity interest in PCC. Contrary to
petitioner's contention, the exchange of the debt for the cruzados
and the conversion of the cruzados into stock did not constitute
a transitory step but rather a substantive and significant element
Page: Previous 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 NextLast modified: May 25, 2011