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FED ERAL R E SE R V E BANK OF NEW YORK Fiscal A g en t o f the U nited States r Circular N o. 3 6 7 9 1 L March 26, 1951 J INCOME T A X STATUS OF TREASURY BOND EXCHANGE OFFER To all Banking Institutions, and Others Concerned, in the Second Federal Reserve D istrict: The Treasury Department lias asked the Commissioner of Internal Revenue whether the exchange oi the 21: percent Treasury Bonds o f 1967-72 for the non-marketable 2% percent / Treasury Bonds is a closed transaction such as to result in a gain or loss for income tax pur poses. The Treasury Department has received the following ruling from the Commissioner of Internal Revenue: Under the provisions o f section 112(a) o f the Internal Revenue Code, every exchange results in gain or loss fo r income tax purposes unless the exchange comes within one o f the statutory exceptions enumerated in section 1 1 2 . Exchange o f 2y2 percent marketable Treasury Bonds o f 1967-72 fo r non-marketable 2'% percent Treasury Bonds does not come within any o f the exceptions enumerated in that section. A ccordingly, gain derived or loss sustained from such exchange would be recognized fo r Federal income tax purposes. The gain or loss will be the difference between the cost or other basis o f the old bonds and the fair market value o f the new bonds on the date o f the exchange. (C f. I.T . 2359, C.B. V I-1, 51; I.T . 2734, C.B. X II-2 , 73.) In the com putation o f such gain or loss the face amount of the new bonds w ill be regarded as their fair market value at the date o f the exchange. The gain derived or loss sustained will constitute section 117 o f the Code, except that in any case where by a dealer in securities prim arily for sale to customers would not constitute capital assets as defined in section constitute ordinary gain or loss. capital gain or loss under the provisions o f the old bonds are held at the time o f exchange in the ordinary course o f business such bonds 117(a) o f the Code and the gain or loss would Additional copies of this circular will be furnished upon request. A llan S proul, President.