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issued to CMI-Texas 3,207,177 shares (i.e., 100 percent) of newly
issued class B stock.
On October 28, 1987, the market value of the debt interest
was US$1,125,000, and the number of pesos the Mexican Government
deposited into Industrias' account was computed based on the
following formula: The face value of the debt (i.e.,
US$2,300,000) multiplied by the market foreign exchange rate for
pesos (i.e., Mex$1639.94/US$), discounted by the authorized rate
(i.e., 15 percent). On that day, the U.S.-dollar equivalent of
the pesos deposited in the account was US$1,955,000. Industrias
was required to use the pesos in the account to purchase goods
and services provided by residents of Mexico. Prior to
disbursement of the pesos, the Mexican Government required
Industrias to make formal written requests, thus ensuring that
the pesos would finance previously approved operations. In
addition, Industrias' class B stock was subject to restrictions
(i.e., CMI-Texas' rights to transfer, redeem, convert, and
receive guaranteed dividends relating to, the stock were
curtailed).
On its consolidated Federal income tax return for the year
ended May 31, 1988, petitioner did not report any gain relating
to the swap transaction. Respondent determined that petitioner
recognized a taxable gain of $830,000 (i.e., the amount realized
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