*3528 Petitioner, in the year 1921, purchased some of its own bonds for less than their face or par value. Held, that it realized no taxable gain from such transaction.
*436 The Commissioner determined a deficiency of $1,010.90 in income tax for the calendar year 1921. It is claimed that the Commissioner erroneously held that petitioner realized a taxable profit upon the purchase of its own bonds during the year 1921.
The facts are stipulated.
*437 FINDINGS OF FACT.
Petitioner is a Pennsylvania corporation with principal office in Franklin.
It succeeded to the business of the General Manifold Co., which had been incorporated in 1900.
The assets and liabilities of the predecessor corporation were taken over by the present company under a plan of reorganization whereby the stockholders exchanged their stock for stock in the new company.
Petitioner assumed a liability on first mortgage bonds of the predecessor company of a face value of $500,000, which were due July 1, 1907, and which incident to the plan of reorganization were extended*3529 for an additional period of 15 years.
Until December 31, 1920, the officers of petitioner had pursued a policy of purchasing these bonds from time to time from bondholders at amounts less than their face value.
May 2, 1921, the policy adopted by the officers and board of directors was approved by the stockholders of the company at the annual meeting of the stockholders held May 2, 1921.
At this meeting the following resolution was adopted:
Resolved, That the action of the officers of the company in purchasing and placing in the Treasury during the year 1920, Ten Thousand Five Hundred Dollars ($10,500) additional First Mortgage Bonds, making the amount being held in the Treasury on December 31, 1920 $162,500.00, (par value), be and hereby is approved; Also be it
Resolved, That the officers of the company are hereby authorized to continue the purchase of the outstanding bonds as opportunity is offered, at such figures as the judgment of the officers of the company shall approve.
Entries were made upon the taxpayer's books, reducing the bonds payable outstanding account as of December 31, 1920, by the face value of the bonds purchased and crediting surplus account*3530 for the difference between the purchase price and the face value.
During the year 1921 the following bonds were purchased at 60 per cent of their face value:
| Vendor: | Par value |
| Charles Miller, Franklin, Pa | $16,000 |
| Joseph C. Sibley, Franklin, Pa | 10,000 |
| F. H. Hatch & Co., 74 Broadway, New York, N.Y. | 5,000 |
| Charles A. Day & Co., 44 Broad Street, New York, N.Y. | 1,000 |
| Total | 32,000 |
For these bonds there was paid to the individuals a total of $19,200 and the balance of $12,800 was credited to the profit and loss account and was reported by petitioner as taxable income.
The bonds were placed in the treasury of the company with bonds purchased in previous years and the balance sheets issued by petitioner *438 showed a reduction in the liability for bonds payable in the amount of $32,000 during the year 1921.
OPINION.
LITTLETON: The issue is whether the purchase by petitioner in 1921 of its own bonds at a price below the face value thereof resulted in taxable income.
In other similar cases the Board has considered the question here involved and held that such transaction did not result in taxable income and on the authority of those decisions, *3531 this question is decided in favor of petitioner. ; ; ; and .
Judgment will be entered under Rule 50.