110 F.2d 878 | 5th Cir. | 1940
Haying owned for seven years $15,000 par value of Cameron County Water Improvement District coupon bonds, in 1935 the taxpayer accepted from the District for them $7,476.75, and in his tax return claimed a deduction of $7,523.25 as for a bad debt charged off. The Board of Tax Appeals upheld the Commissioner in his ruling that the loss was not a bad debt under Sect. 23 (k) of the Revenue Act of 1934, 26 U.S.C.A.Int.Rev.Acts, but fell under a new provision, Sect. 117(f) of that Act, whereby the loss on the bonds was to be treated as a capital loss. This is the sole question here.
Section 117 deals with capital gains and losses, which are “recognized upon the sale or exchange of a capital asset.” Prior to 1934, a corporate bond note or other evidence of debt, when it proved bad in whole or in part, could be charged off as a bad debt. Only if sold or exchanged could it be treated as a capital asset. Sect. 117(f), put into the Revenue Act of 1934, reads thus: “For the purples of this title, amounts received by the holder upon the retirement of bonds, debentures, notes, or certificates or other evidences of indebtedness issued by any corporation (including those issued by a government or political subdivision thereof), with interest coupons or in registered form, shall be considered as amounts received in exchange therefor.” 26 U.S.C.A. Int.Rev.Acts, § 117(f). The corporate paper described as registered or bearing coupons is intended for long time investment. The effect of the provision is to make the retirement of it by the maker equivalent for tax purposes to a sale of it to another, and the necessary consequence is that it falls under the capital assets provisions of Sect. 117(a) and (d), and if it has been held more than a year a loss cannot be taken into account at 100 percent, and the limitation of capital net losses to $2,000 will apply. Such was the treatment given this loss.
Affirmed.