Commissioner v. Korell

The tax consequences of a purchase of convertible bonds are in issue here. In August, 1944, respondent, an individual taxpayer, purchased certain American Telephone and Telegraph Company bonds, each having a face value of $100, at a premium price averaging slightly in excess of $121. Each bond was convertible into a share of common stock, at the option of the bondholder, upon the payment of $40. The market price of the stock was over $163 when respondent made his bond purchases. The bonds were callable prior to maturity date according to a schedule appearing in the indenture; had the…