Gilbert Hahn, Jr. and Margot H. Hahn - Page 11
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later repurchased its bonds for an amount greater than the issue
price, the taxpayers did not realize income and were, in fact,
poorer by the transaction. In Fashion Park, Inc., this Court
rejected the Commissioner’s argument that the holdings of Rail
Joint Co. and Fashion Park, Inc. conflicted with Kirby Lumber
Co., noting that “‘We have consistently * * * emphasized the
issue price rather than par value in computing gain from the
discharge of obligations.’” Fashion Park, Inc. v. Commissioner,
supra at 606 (quoting Kramon Dev. Co. v. Commissioner, 3 T.C.
342, 349 (1944)); see also Rail Joint Co. v. Commissioner, supra
at 752. The holdings in Rail Joint Co. and Fashion Park, Inc.
are consistent with section 1.61-12(c)(3), Income Tax Regs.,
which provides: “If bonds are issued by a corporation and are
subsequently repurchased by the corporation at a price which is
exceeded by the issue price * * *, the amount of such excess is
income for the taxable year.”
In the instant case, petitioner did not issue bonds or other
debt instruments at a discount. Accordingly, cases such as Rail
Joint Co. and Fashion Park, Inc. are inapposite.
The third case on which petitioner relies, Bradford v.
Commissioner, supra, is also distinguishable. In Bradford, the
T.C. 600 (1954), the taxpayer originally issued $50 par preferred
stock for $5 a share. In a tax-free reorganization, the company
later issued $50 par value bonds in an exchange for the preferred
stock. Id. at 601-603.
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Last modified: November 10, 2007