Opinion
No. 14611.
Argued March 3, 1964.
Decided April 7, 1964.
Donald B. Jones, Newark, N.J., for petitioners.
Jonathan S. Cohen, Dept. of Justice, Washington, D.C. (Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Joseph Kovner, Attorneys, Department of Justice, Washington, D.C., on the brief), for respondent.
Before McLAUGHLIN and FORMAN, Circuit Judges, and LEAHY, District Judge.
Taxpayer, inter alia, purchases remainder interests in trusts. In the two interests before us in this review, as is his practice, after the deaths of the life tenants but prior to the distribution of the estate remainders of the trusts, he transferred his interests therein. His motivation is to obtain capital gains treatment for income tax purposes. The Tax Court held that the taxpayer could not transmute gain which would be ordinary income to him into capital gain by the device of a sale, notwithstanding that the sale was the bona fide sale of a capital asset. The Commissioner argues for the sustaining of the decision on the theory that the taxpayer's gain upon the sales of the remainders represents an increase in value attributable to interest income, in the form of an interest discount in his original purchase price for the remainders. We are impressed with this and in connection therewith consider it necessary to remand the case to the Tax Court for further proceedings to determine what part, if any, of the gain received upon the taxpayer's sale of the remainders was in fact the realization of interest discount and, if the latter is established, to make an allocation of the proceeds between its ordinary income and capital gain components.
The decision will be vacated and the case remanded to the Tax Court for further proceedings in line with this opinion.