Rev. Rul. 67-409

Advice has been requested whether the Internal Revenue Service follows the decision of the United States Court of Appeals for the Seventh Circuit in the case of Roberts & Porter, Inc. v. Commissioner, 307 F. 2d 745 (1962), reversing 37 T.C. 23 (1961), Acquiescence, C.B. 1962-2, 5.

The Seventh Circuit held that the premiums paid by the taxpayer on the purchase of its callable convertible notes in excess of the amounts for which it was legally bound to pay upon calling the notes constituted ordinary and necessary business expenses within the provisions of section 162 of the Internal Revenue Code of 1954 and section 1.61-12 of the Income Tax Regulations. In that case the position of the Service was that such excess amounts are not deductible.

The longstanding position of the Service has been that a deduction for premiums paid by a corporation on the redemption or repurchase of its own bonds, under the provisions of these sections or any other sections of the Code or regulations, is limited to an amount which relates to the cost of borrowing money and, thus, such excess amounts are not deductible. Because of the lack of a conflict in decisions, the Service did not apply for certiorari in Roberts & Porter, Inc.

Accordingly, the Service does not follow the decision of the Seventh Circuit in the Roberts & Porter, Inc. case as a precedent in the disposition of similar cases.

¹ Also released as Technical Information Release 939, dated Oct. 30, 1967.