Swoby Corp. v. Commissioner
United States Tax Court
1. 99-year 8 per cent "income debenture" of $ 250,000, issued with petitioner's stock of $ 200 total par value in exchange for property of sole stockholder upon petitioner's incorporation, held to represent invested rather than borrowed capital, requiring disallowance of deductions for "interest." 2. Payment by petitioner's lessee in return for petitioner's permission to cancel sublease, held not to entitle petitioner to relief under Internal Revenue Code, section 721 (a)…
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1. 99-year 8 per cent "income debenture" of $ 250,000, issued with petitioner's stock of $ 200 total par value in exchange for property of sole stockholder upon petitioner's incorporation, held to represent invested rather than borrowed capital, requiring disallowance of deductions for "interest." 2. Payment by petitioner's lessee in return for petitioner's permission to cancel sublease, held not to entitle petitioner to relief under Internal Revenue Code, section 721 (a) (2) (E), in absence of showing that transaction was abnormal.
1Opinion of the Court
OPINION.
Oppee, Judge:
While the specified factual distinction1 between John Kelley Co. v. Commissioner and Talbot Mills v. Commissioner, 326 U. S. 521, furnishes little assistance in determining whether the “debenture” in issue represents an indebtedness and the interest carried by it is hence deductible, two other factors not present in those cases but alluded to by the Supreme Court in the same opinion seem to indicate that it is not.
That Court takes occasion to issue what we can not but view as a warning when it notes that “As material amounts of capital were invested in stock, we need not…
2Cases cited3 opinions
- John Kelley Co. v. CommissionerSupreme Court of the United States · 1946
- Mullin Bldg. Corp. v. CommissionerUnited States Tax Court · 1947
- Golden Belt Lumber Co. v. CommissionerUnited States Tax Court · 1943
3Cited by2 opinions
- Earle, Collector of Internal Revenue v. W. J. Jones & Son, Inc. United States v. W. J. Jones & Son, IncCourt of Appeals for the Ninth Circuit · 1952
- Swoby Corp. v. CommissionerUnited States Tax Court · 1947