Court Opinion

ID: 9637082
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:56:04.309332+00
Date Added: 2024-06-11T18:09:52.919370
License: Public Domain

MACK, Circuit Judge
(dissenting in part).
I concur in the opinion of the court except as to the $103,020.54 and the $59,680, the former being 57 per cent, of tbe unamortized discount and expense in 1922; tbe latter the $40 premium on the 1,492 D 8 per cent, bonds exchanged pursuant to the original option for the Series "C 6 per cent. loan.
The treasury regulation set out in the majority opinion does not cover this part of the case. Even though the money raised by appellant through the sale of the B bonds is stipulated to have been used to pay off the 43 per cent, of the D bonds, the two transactions were entirely distinct. What appellant did was to raise money through the sale of its B bonds for its general purposes — the predominant one of which was the payment of as many of the D bonds as were not exchanged. There was no integral relation between the D bonds so paid off and tbe new B bonds sold on the market in order to raise the money to pay them off. If appellant had had sufficient money in its treasury, there would have been no need to issue the new B securities. These B bonds were in no sense substituted for oí a continuation of the D bonds. The raising of the money through the sale of the B bonds was a transaction entirely distinct from the paying off of the D bonds.
The situation, however, as to the G bonds is, in my judgment, entirely different. Those D bondholders who made the exchange exercised a right that had been created when the D bonds were issued. The O bonds were issued at the same time for the very purpose of being substituted if the holders should exercise their option. When the exchange was made in 1922, the indebtedness originally created and evidenced by the 1492 D bonds was in no sense paid; its form was merely changed by an extension of the maturity, a decrease in the interest rate, in form to 6 per cent.; in substance, however, to a somewhat higher rate represented by the $40 cash premium, and tbe $10 cash discount paid at the time.
In my judgment, neither the unamortized part nor the premium was any more a loss to the company for the year 1922 than was the $10 discount. As appellee contends, this nn-*682amortized portion was in 1922 just what it was in 1920' — a prospective, but not a realized, loss. It would become an aetual loss only if and when appellant actually paid off and retired the bonds at par. The substitution of the new bonds pursuant to the original contract is not, however, a payment of the debt; the debt remains. One document has merely been substituted for another as evidence of it.
I concur, too, fully, in appellee’s argument that the payment of the $50 in 1922, pursuant to the terms under which the original indebtedness was created in 1920, is just as much a discount attaching to the C bond as the original $70 was a discount attaching to the D bond.
In Commissioner v. Coastwise Transportation Corporation, 62 F.(2d) 332 (C. C. A. 1, 1932), gold bonds for a much lesser amount were accepted by note holders in exchange for the corporation’s notes. The court held that the difference in the face values of the bonds and the notes, was a taxable profit earned by the corporation in the year of the.exchange. In that ease, however, unlike the instant case, the exchange was purely voluntary on both sides, and not pursuant to a contractual option granted to the note holders at the time that the notes were executed. The situation in that ease, because of the absence of this contractual right, was no different than it would have been if instead of offering the bonds to the note holders, the corporation had sold them on the market and instead of exchanging had actually purchased and canceled the notes.