Gilbert Hahn, Jr. and Margot H. Hahn - Page 10
- 10 -
v. Commissioner, supra at 606 (citation omitted), this Court held
that “if * * * [a taxpayer] has received upon issuance of its
bonds an amount less than it paid for their retirement it has no
accession in assets but is in fact poorer by the transaction”.
Petitioner contends that he did not realize discharge of
indebtedness because, like the taxpayers in Rail Joint Co. and
Fashion Park, Inc., he “did not wind up with anything more than
what [he] had prior to the [transaction].” Petitioner fails to
appreciate the holdings of those cases.
Rail Joint Co. and Fashion Park, Inc. were decided after the
Supreme Court’s decision in United States v. Kirby Lumber Co.,
supra. In Kirby Lumber Co., a taxpayer issued bonds in the
amount of $12,126,800 for which it received par value; i.e., the
issue price and par value were the same. The taxpayer later
repurchased the bonds for less than par value. The Supreme Court
held that the difference between the repurchase price and the par
value was income. Id. at 2-3.
The taxpayers in Rail Joint Co. and Fashion Park, Inc., in
contrast, did not receive par value for the bonds they issued.
The face value of the bonds exceeded the amount the taxpayers
received when the bonds were issued.5 Because each taxpayer
5 In Commissioner v. Rail Joint Co., 61 F.2d 751 (2d Cir.
1932), affg. 22 B.T.A. 1277 (1931), the taxpayer distributed the
bonds to its shareholders as a dividend and, therefore, received
no proceeds in return. In Fashion Park, Inc. v. Commissioner, 21
Page: 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Last modified: November 10, 2007