Fender v. United States

577 F.2d 934 (5th Cir. 1978)

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Nature of the Case

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Facts

P established two trusts for his two sons and in 1969 the trusts had large capital gains from the sale of certain Continental Telephone stock. To offset those gains, P attempted to sell an installment of Bender Road Improvement District WW and SS Combination Tax and Revenue Bonds. The bonds were purchased for $435,017 and had a par value of $445,000. On December 26, 1969, P completed an over-the-counter sale of the bonds to the Longview National Bank & Trust Company for $225,000 (approximately 50% of par value) plus accrued interest. This resulted in a $106,258.35 loss for each of the trusts. At the time of the sale, P controlled 40.7% of the Longview National Bank's stock either individually or through the two trusts. Shortly thereafter, on January 15, 1970, P's interest in the bank increased to 50.15%. On February 6, 1970, 42 days after their transfer to the bank, the trusts repurchased the bonds from the bank for $224,735 (approximately 50.5% of par value) plus accrued interest. D disallowed the loss deduction. P took this suit. The district court ruled for P. D appealed.