Commissioner v. Palm Springs Holding Corp.

These are petitions to review a decision of the Board of Tax Appeals redetermining1 claimed deficiencies in respect of income and excess profits taxes of Palm Springs Holding Corporation (hereafter called the taxpayer) for the taxable year ended May 31, 1936.

In May, 1932, the taxpayer acquired bonds of Palm Springs Hotel Company, a corporation (hereafter called the Hotel Company), of the face value of $292,000. The bonds were secured (1) by a mortgage on real property owned by the Hotel Company and leased by it to Palm Springs Hotel Operating Company, 1 a corporation (hereafter called the Operating Company), and (2) by a pledge of the lease and a chattel mortgage securing performance of the Operating Company’s obligations thereunder, the chattel mortgage being on furniture and fixtures owned by the Operating Company. Both the realty mortgage and the pledge were to California Trust Company, as trustee.

On July 15, 1932, the bonds being in default, the mortgaged realty and the pledged lease ‘and chattel mortgage were sold by the trustee and purchased by the taxpayer for a bid price of $61,800, of which $18,767.-96 was paid in cash, the balance ($43,032.-04) by the taxpayer’s…