Paine v. Commissioner
United States Tax Court
Petitioners sold, 10 days prior to maturity, certain non-interest-bearing notes which had been issued originally on a discount basis for substantially less than face value. As a result of the sales just before maturity, petitioners realized an increment or profit representing the excess of sales price over basis.
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Petitioners sold, 10 days prior to maturity, certain non-interest-bearing notes which had been issued originally on a discount basis for substantially less than face value. As a result of the sales just before maturity, petitioners realized an increment or profit representing the excess of sales price over basis. Held, that the increment or profit so realized was in fact interest and was taxable as ordinary income notwithstanding the fact that the transactions resulting in the realization of such increment or profit constituted sales.
1Opinion of the Court
OPINION.
FisheR, Judge:
The primary issue presented for our consideration involves the determination of whether increment or profit realized in conjunction with the sale of non-interest-bearing notes constitutes ordinary income or is capital gain, upon the facts of the instant case. The trustees of the two Paine trusts and the Cecil B. Myers Trust acquired the notes in the manners set forth in our Findings of Fact. Each note was worth substantially less on the date of issue than the face value at the date of maturity. Ten days before each note matured, a transfer was effectuated and petitioners…
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