The Texstar Corporation, Transferee of the Assets of Unitex Industries, Inc. And Its Subsidiaries v. United States

THORNBERRY, Circuit Judge:

The sole issue in this appeal is whether Texstar Corporation is entitled to a debt discount deduction under 163(a) of the Internal Revenue Code of 1954, 26 U.S.C. § 163(a), 1 based on its exchange of debenture bonds for all its outstanding preferred stock.

The exchange of debentures for preferred stock scrutinized in this case was carried out by Unitex Industries prior to Texstar’s purchase of Unitex in 1966. 2 Unitex was first incorporated as I.C.T. Discount Corporation in 1952. At that time it issued both common and preferred stock. The preferred was cumulative,…