Commissioner v. Bondholders Committee

These two petitions to review decisions of the Board of Tax Appeals were consolidated for hearing and involve income taxes for the years 1933, 1934 and 1935. The facts are not in dispute.

The Marlborough Investment Company, a corporation, issued its bonds aggregating $500,000, secured by a trust deed on an apartment building known as Marlborough House and personal property therein. De *512 faults occurred in the payment of principal and interest; the principal sum of $453,000 was unpaid. Shortly thereafter holders of these bonds amounting to $441,000 deposited their holdings with a committee under an agreement which gave it broad powers for working out and executing a plan for protecting their interests. Acting under this authority the committee caused the trustee to begin foreclosure proceedings upon the trust deed, formed a new corporation known as Marlborough House, Inc., to take over the property, gathered in an outstanding third party interest to clear the title, purchased the property at the foreclosure sale through a trustee or agent, and finally caused it to be conveyed by the purchaser to the new corporation in exchange for all of its stock. ■

The purchase price at the…