Court Opinion

ID: 9636529
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:32:11.487194+00
Date Added: 2024-06-11T18:09:46.785614
License: Public Domain

JONES, Circuit Judge
(dissenting).
Assuming that a discount may be determined from an issuance of bonds in exchange for goods and property other than money, it would, of course, still be incumbent upon the obligor, in order to render the discount determinate, to establish that the bonds were in fact issued for considerations worth less than the par value of the bonds. I am unable to see how, under the circumstances of this case, the market quotations on the shares of stock received by the taxpayer in exchange for its bonds can be taken as proof of the value of the bonds.
The obligor’s acquisition of its wholly owned subsidiary’s preferred stock by means of the bond exchange was in aid of the contemplated liquidation of the subsidiary which the parent desired to bring about and which was duly consummated. The book or liquidating value of the stock was the thing to be made available to the parent but not to the ordinary purchaser in the market. Moreover, the market prices of the stock, while outstanding, may well have been affected (as is frequently the case) by conditions wholly unrelated to the value of the stock, e. g., the extent of the market demand in relation to the supply available. Indeed, the importance of that fact in its effect upon the market for the stock may well have been an inducing cause for the parent’s adoption of the medium of an exchange of its bonds for its subsidiary’s preferred stock rather than a sale of its bonds for cash (thereby establishing their worth) and a purchase of the stock with the proceeds. Nor may the prices obtainable for the bonds be deemed to scale in the same direction as the prices for the stock. The inverse is more likely to be true. Ordinarily, when equities are high, liens are relatively low, and vice versa. Incidentally, the Class “A” preferred, for a share of which a $7.50 cash premium was originally offered in exchange, in addition to the parent’s $100 bond, was a 6% stock, as against a 5% dividend rate on the Class “B” preferred, and, therefore, perhaps harder to dislodge,—peculiarly a consideration to the parent (the bond issuer) in furtherance of its plan to liquidate the subsidiary.
In my opinion the Commissioner was justified in refusing the taxpayer the right to> amortize an alleged, but unproven, bond discount, wherefore, the judgment of the District Court should be affirmed.