Commissioner v. Columbia River Paper Mills

This appeal is taken from a decision of the Board of Tax Appeals. It involves the question whether under § 23(b) of the Revenue Act of 1936, 26 U.S.C.AJnt.Rev. Code, § 23(b), the taxpayer is entitled to deduct from gross income for the year 1937 the full amount of interest accrued on bonds dated July 1, 1937, but not actually issued until later in that year.

Taxpayer is a Washington corporation. From the date of its organization in 1923 it had outstanding both common and preferred shares of capital stock, the preferred shares providing for the payment of cumulative dividends (denominated “interest” in the by-laws) at the rate of 8% per annum. For a number of years prior to the taxable year no dividends had been paid upon the preferred shares. Under date of August 1, 1937, the taxpayer offered *1010 to exchange for shares of its preferred stock income bonds maturing December 31, 1967, at the rate of $140 par value of bonds for each $100 par value of preferred stock, the bonds to bear interest at the rate of 5% per annum from July 1, 1937, payable if earned. The bonds bore date July 1, 1937, and provided that the interest should be cumulative from and after that date; and that “in…