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Lewis R. Mandel, and Trevor T. Wetherington, for respondent.
FOLEY, Judge: By notice dated October 6, 1992, respondent
determined a $291,011 deficiency in petitioner's 1988 Federal
income tax. The primary issue for decision is whether
petitioner, pursuant to section 367(a), recognized gain relating
to the swap transaction. We hold petitioner did not. All
section references are to the Internal Revenue Code in effect for
the year in issue.
FINDINGS OF FACT
In the 1980's, the Mexican Government created a "debt-
equity-swap" (swap) program that was designed to encourage
foreigners to invest in Mexico and reduce the outstanding balance
of the Mexican Government's foreign-currency-denominated debt.
The program's swap transactions involved a series of prearranged
steps that were accompanied by extensive documentation. In these
transactions, a U.S. investor could purchase an interest in the
Mexican Government's U.S.-dollar-denominated debt and, in
exchange for stock, transfer such interest to its Mexican
subsidiary.1 The debt would then be canceled, and the Mexican
Government would transfer pesos to the subsidiary.
1 Compare G.M. Trading Corp. v. Commissioner, 121 F.3d 977,
979 (5th Cir. 1997), revg. 103 T.C. 59 (1994), supplemented by
106 T.C. 257 (1996), where the taxpayer transferred debt to the
Mexican Government in exchange for pesos.
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