In 1925 taxpayer obtained a loan of $90,000 from a bank, executing in return 200 bonds secured by a mortgage on certain of his property. The bank sold the bonds to the public. Until 1932 taxpayer was able to pay the interest and retire the bonds according to schedule, but in that year, compelled by a "straitened" (but solvent) financial condition, he obtained an extension of interest and principal payments. During 1938, 1939 and 1940 (prior to maturity) taxpayer repurchased a portion of the bonds at considerably less than face value, some of the purchases being made through a bondholders' committee, some through security houses and others directly from the bondholders. The commissioner ruled that the difference between the (ace value and the repurchase price of each bond constituted taxable income, and adjusted taxpayer's returns for those years accordingly. On taxpayer's petition for redetermination, the Tax Court held that the gains resulting from the purchases directly from the bondholders were gifts within the meaning of Helvering v. American Dental Co.; but that the gains resulting from the purchases through the bondholders' committee and the security houses were taxable income because, these purchases being analogous to those on the "open market," the "personal element . . . necessary to make a gift within the meaning of the American Dental Co. case was absent." Both the commissioner and the taxpayer appealed to the Seventh Circuit Court of Appeals which held that none of the purchases was made in the "open market" since each bondholder knew he was selling, directly or indirectly, to the taxpayer, the only market for these securities, and therefore all gains were gifts. On certiorari to the United States Supreme Court, held, reversed. Discharge of indebtedness may result in income or a gift depending upon the factual question whether the creditor intended to make a gift of part of his claim as distinguished from a sale of his whole claim for the highest price available. In the absence of a finding on this question, the commissioner was sustained. Commissioner v. Jacobson, (U.S. 1949) 69 S.Ct. 358.

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