Gulf, Mobile and Ohio Railroad Company, Cross-Appellant v. United States of America, Cross-Appellee

JOHN R. BROWN, Chief Judge:

The issue in this tax refund case is whether Gulf, Mobile & Ohio Railroad Company (GM&O) can receive a deduction for original issue discount on the exchange of debentures for its own preferred stock. Or, in other words, is this case distinguishable from Commissioner v. National Alfalfa Dehydrating & Milling Co., 1974, 417 U.S. 134, 94 S.Ct. 2129, 40 L.Ed.2d 717? The District Court held that a deduction for discount should be allowed, and we affirm. We disagree, however, with the lower court’s measurement of the discount.

The Bare Facts

The preferred stock involved in…