Joseph I. Lubin and Evelyn J. Lubin, and Estate of Joseph Eisner, Deceased, Helen Eisner, and Helen Eisner v. Commissioner of Internal Revenue

WATERMAN, Circuit Judge:

We are called upon in this case to determine whether a sum of $1,000,000 -realized by four taxpayers upon the retirement of twelve registered mortgage notes, a sum representing the difference between the $3,000,000 face value of the notes and the $2,000,000 which the taxpayers actually paid for them upon issuance, is to be treated for income tax purposes as ordinary income or as a capital gain. The Tax Court, T. C. Memo 1963-292, concluded that the $1,000,000 increment represents interest realized by the taxpayers upon a principal sum, and therefore has ruled that…