Source: https://supreme.justia.com/cases/federal/us/297/543/
Timestamp: 2019-04-20 10:17:06+00:00

Document:
The parties disagree as to petitioner's right to deduct from gross income for 1924 unamortized discount, premiums, and expenses paid and incurred in that year in connection with the retirement of certain bonds. The petitioner took the deduction in its income tax return.
for Series B 7's, cash was paid at the rate of 105 percent of par, and the company incurred certain expenses in the transaction. The total of the premium, the expense, and the unamortized discount applicable to all of the bonds redeemed for cash or in exchange for Series B bonds was charged off in 1924 and taken as a deduction from income for that year. The company keeps its accounts on the accrual basis. The Commissioner disallowed the entire deduction, but, before the Board, he admitted the propriety of so much of it as applied to bonds redeemed for cash. He insisted, however, that, as to those retired by exchange of the Series B 7's, the discount, premium, and expense should be amortized over the life of the latter. The Board overruled his contention, but the Circuit Court of Appeals sustained it, holding that the items would not be deductible as realized losses until payment or redemption of the Series B bonds, and should be amortized in annual instalments during their term.
amortized annually throughout the term of the bonds delivered in exchange for those retired.
San Joaquin L. & P. Corp. v. McLaughlin, Collector, 65 F.2d 677.
C. 234, 43 Stat. 253, 283.
"Art. 545. Sale and retirement of corporate bonds."
"(3)(a) If bonds are issued by a corporation at a discount, the net amount of such discount is deductible and should be prorated or amortized over the life of the bonds."
"(b) If, thereafter, the corporation purchases and retires any of such bonds at a price in excess of the issuing price plus any amount of discount already deducted, the excess of the purchase price over the issuing price plus any amount of discount already deducted (or over the face value minus any amount of discount not yet deducted) is a deductible expense for the taxable year."
"(c) If, however, the corporation purchases and retires any of such bonds at a price less than the issuing price plus any amount of discount already deducted, the excess of the issuing price plus any amount of discount already deducted (or of the face value minus any amount of discount not yet deducted) over the purchase price is gain or income for the taxable year."
Helvering v. Union Pac. R. Co., 293 U. S. 282; Helvering v. California Oregon Power Co., 64 App.D.C. 125, 75 F.2d 644.
Helvering v. California Oregon Power Co., supra; Helvering v. Central States Elec. Corp., 76 F.2d 1011; Helvering v. Union Public Service Co., 75 F.2d 723; T.D. 4603, XIV C.B. 46, p. 3.

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