Court Opinion

ID: 4482649
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:36.805771+00
Date Added: 2024-06-11T14:19:45.068911
License: Public Domain

DeeNNEN, •/., dissenting: I respectfully disagree with the majority on the second issue. Since the evidence does not disclose whether the premium was paid for the equity features attached to the guaranteed stock or for the debt features, I think we are left with the reality that petitioner paid what the market required to redeem the guaranteed stock itself. If I understand the findings of fact correctly the petitioner paid on the average $12 to $14 more than the average market price of the stock during the year in which the purchases were made. Of course the average market price of the stock included most of the excess of the price paid over the par value of the stock and since petitioner could not expect to buy the stock for less than the market price, it cannot realistically be said that petitioner was paying that part of the premium for anything other than to meet the market price, which was set by third parties. So I am left with the impression that petitioner paid a premium to buy the stock itself, just as any trader or investor would have to meet the market price to acquire any stock or bond. If this is so we must then determine only whether the stock represented debt or equity. Both this Court in 33 B.T.A. 895 and the Court of Appeals for the Fourth Circuit in 90 F. 2d 971 characterized this stock as a secured debt of the petitioner. The Court of Appeals went further than this Court, saying: Nor does the fact that the guaranteed stock shares in the profits of the corporation above the guaranteed dividends, if these are exceeded by the ordinary stock dividends, and that it has a vote in the management of the corporation, detract from its position as secured indebtedness. * * * I would accept this characterization of the stock for purposes of this case, i.e., that the stock is an evidence of indebtedness. This being so, the premium paid is clearly deductible in the taxable year paid under section 1.61-12 (c), Income Tax Begs., quoted in the majority opinion. In addition, with reference to convertible bonds, it was held in Roberts & Porter, Inc. v. Commissioner, 307 F. 2d 745, that “There is no provision in the Code or the Begulations which requires allocation of a part of the total purchase price to the value of the conversion privilege.” The Fourth Circuit, which is the controlling circuit in this case, see Jack E. Golsen, 54 T.C. 742, is in accord. See Head Ski Co. v. United States, 454 F. 2d 732 (C.A. 4, 1972). I do not find it as easy as does the majority to distinguish this guaranteed stock from convertible bonds. In fact, a great deal of the majority opinion is devoted to distinguishing other cases which might suggest a different result in this case; but I find no case cited which supports the conclusion reached by the majority. I would not struggle so hard to avoid what appears to be a tax windfall to petitioner. I would allow the deduction which I think petitioner is entitled to under the law, the regulations, and the decided cases. Gorfe, J'., agrees with this dissent.