Beaver Pipe Tools, Inc., Appellant, v. Thomas M. Carey, Appellee (two Cases), 240 F.2d 843 (6th Cir. 1957)

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US Court of Appeals for the Sixth Circuit - 240 F.2d 843 (6th Cir. 1957) January 4, 1957

Robert G. Day; Hoppe, Day & Ford, Warren, Ohio, for appellant.

Charles K. Rice, Lee A. Jackson, Harlan Pomeroy, Washington, D. C., Sumner Canary, Cleveland, Ohio, for appellee.

Before MARTIN, MILLER and STEWART, Circuit Judges.


On this appeal by the taxpayer, Beaver Pipe Tools, Inc., from the decision of the district court dismissing its complaint, the issue is whether interest paid by the taxpayer on preferred debentures having no fixed maturity date, issued by the taxpayer in exchange for its outstanding cumulative preferred stock, is deductible as interest paid on indebtedness within the meaning of 26 U.S.C. § 23(b).

United States District Judge Paul Jones, in a succinct and logical opinion, held that interest so paid is not deductible. He considered that the maturity date of the preferred debentures, being "`upon liquidation of the company'", did not constitute "a `fixed date'" or a certain time, as required by the aforementioned statute and the regulation promulgated thereunder. [139 F. Supp. 472].

We are in accord with his reasoning. In addition to having no fixed maturity date, the debentures in question were not issued for new capital, had a face value nearly ten times the stockholders' equity, and were junior to the claims of general creditors. We find on the whole record that no other point presented by appellant has been established to gainsay the correctness of the decision of the district court.

Accordingly, the order dismissing the taxpayer's complaint is ordered to be affirmed.