Rev. Rul. 71-457

N, a United States person was indebted to L, another United States person, as evidenced by a promissory note. X a foreign obligor was indebted to N as evidenced by a similar promissory note. N, desiring to be released of its obligation to L, arranged with L and X to substitute X's name in place of its own name on the note which L held and to cancel X's note. There are no exemptions applicable to the debt obligations involved under the interest equalization tax provisions of the Internal Revenue Code of 1954.

Held, the substitution of the debt obligation of X for the debt obligation of N by L is a new acquisition of a debt obligation within the meaning of sections 4911 and 4912(a) of the Code and L is liable for interest equalization tax as a result of the substitution even though N may have paid interest equalization tax with respect to X's original obligation. The amount of the tax would be based on the consideration paid, i.e., the value of the discharged debt obligation of N.