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Entered November 11, Attorney s appearing for the Case John W. United States Tax Court. The questions presented are whether the petitioner is entitled to deduct as interest, payments made to the holders of its debentures and whether it is entitled to deduct additions to its sinking fund.
All facts were stipulated. We adopt such stipulation by reference and find the facts therein set forth. Such portions as found necessary to discussion of the issues presented may be summarized as follows: Petitioner has uniformly, upon the sale of its debentures, placed 90 per cent of the money in a general investment account and 10 per cent in an operating account.
Bonds have been purchased with the funds in the investment account and deposited with a bank in Kansas City, subject to withdrawal in case of sale thereof by the petitioner. The proceeds from the sale of a bond are placed in petitioner's general investment account and the gain or loss from such sale is reflected in petitioner's gross earnings, as is interest collected from such bonds.
In its income tax returns, from its organization in up tothe payments made by petitioner to its debenture holders were treated as and considered to be dividends, and no deduction was taken therefor.
On capital stock tax returns filed by the petitioner for capital stock tax years ending on June 30, inandthe debentures were classified as preferred stock, and on excess profits tax returns filed by the petitioner for andthe amounts received from sale of debentures were included in petitioner's invested capital, in the computation of 1944 and bonds payable excess profits credit, in accordance with the invested 1944 and bonds payable method.
LOUISIANA LAW REVIEW the rights of the decedent's legal heirs to claim reduction or colla-tion in cash or other property. The Succession of Geagan4 involved bonds registered in the name of the decedent payable on his death. k. The Securities and Exchange Commission (SEC) requires that all publicly traded companies file a Form k every year. The filing date, ranging from 60 to 90 days after the end of a company's fiscal year, depends on the value of the publicly held shares. Ch 14 1. CHAPTER 14 Long-Term Liabilities ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems Concepts for Analysis 1.
The certificates of debentures issued by the petitioner were entitled "Speculative Five Percent Participating Cumulative Debenture. The record does not disclose whether the statutes of Kansas, with reference to liens, were complied with, nor whether the bonds purchased with the 90 per cent proceeds of the sale of any particular debenture were allocated in any way to that debenture.
He determined that 10 per cent of the payments received on the debentures during the year did not constitute taxable income. Under the above facts, we are to decide, first, whether payments denominated by the petitioner as "interests" to the holder of its debentures constitute interest deductible within the meaning of section 23 b of the Internal Revenue Code, or whether they are rather of the nature of a "dividend" or distribution made to shareholders out of earnings or profits, within the meaning of section a of the Internal Revenue Code.
The nomenclature used by the petitioner in its records, resolutions and certificates, though it may properly be considered, is not conclusive. We must, from all of the circumstances, decide whether the transaction was in fact an investment in the corporation or a loan to it.
We have examined carefully the stipulated facts and have considered the authorities cited by the respective parties and upon consideration thereof it is our conclusion that there is here presented a case of an investment in the corporation in the nature of stock, and not such a loan to it as would justify the deduction of amounts paid thereon as interest, under the statute.
Without reciting all of the considerations which had led us to this conclusion, we point out that the debenture holder did not have the right to receive payment of the principal amount invested by him at a definite maturity date.
On the contrary, 10 per cent of his investment was immediately deducted for operating expenses and his right, under the terms of the debenture certificate, was to receive, so far as principal is concerned, at any time after 18 months he gave notice of his desire for redemption, "the full book value of the debenture plus accrued interest to date of redemption at a rate of five per cent per annum computed from last previous interest distribution period, plus any unpaid cumulations of interest, less a discount of six per cent of the total of such book value and interest.
Such an arrangement precludes any idea that the debenture holder has a right to receive a certain sum at a certain time; yet, we find Commissioner v.
To the same effect are Ticker Publishing Co. Schmoll Fils Associated, Inc. Even in those cases which hold that there is indebtedness, even though the interest is payable out of net income, we find reliance upon the fact that there is a definite maturity date for the payment of a definite amount.
It is clear from the facts stipulated in this case and summarized above that the debenture holders were not entitled to any fixed sum at any fixed date. So far as principal is concerned, therefore, the debenture holders are seen to be merely participating in the profits of the company, whatever they may be.
Aside, therefore, from the question as to whether interest being payable only from corporate earnings or profits indicates a non-indebtedness nature in the indentures, we consider that there was no indebtedness involved in the transaction here at hand. The intention of the parties is a criterion to which resort should be had.
The intention of the petitioner to issue something in the nature of stock rather than indebtedness is apparent, though perhaps in a lesser degree, from the fact that the directors' resolutions provide that debentures which had been redeemed "may be cancelled or resold in the discretion of the board of directors.If a regular interest bond is redeemed during the closed book period, interest for that year will be paid on the anniversary date and unearned interest for the months not elapsed will be deducted from the par value of the bonds at the time of redemption.
Board of Regents, Murray State Normal School all outstanding Fine Arts Building Revenue Bonds of of the Board of Regents of Murray State Teachers College at Murray, Kentucky, which bonds are payable from and secured by the revenues from the. Interest is payable semiannually on February 1 and August 1 with the bonds maturing on February 1, The bonds are callable at (b) On August 1, , XYZ, Inc.
paid interest on the bonds and recorded amortization.
Qualified small issue bond; qualified student loan bond; qualified redevelopment bond the maximum rate of interest payable on any loan, (ii) the loans are directly or indirectly guaranteed by the Federal Government, , ch.
, 58 Stat. Subpart I of part C of title VII of the Act was classified generally to subpart I. Export under bond of goods on which duty has not been paid. [Omitted] 14A. RULES, CHAPTER I PRELIMINARY. 1. Short title and extent. These rules may be called the Central Excise Rules, keep with any person dealing in such goods an account-current of the duties payable thereon, and such account shall be settled at.
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