Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 54-60

1954-1 C.B. 241

Caution: Obsoleted by Rev. Rul. 69-227

IRS Headnote

A change in the interest rate of outstanding bonds, as effected by a consolidation agreement, constitutes such a material change in the obligations as to create a new issue, subject to original issue tax under sections 1800 and 1801 of the Internal Revenue Code.

Full Text

Rev. Rul. 54-60

Advice is requested concerning the application of the tax on issue of corporate securities imposed by sections 1800 and 1801 of the Internal Revenue Code where, under the provisions of a consolidation agreement, the interest rate of outstanding bonds is increased.

In the instant case, M Corporation and N Bank executed an agreement pursuant to which three mortgages and the bonds secured thereby were consolidated to constitute one outstanding mortgage and bond. The agreement also effected an increase in the interest rate of the obligation from 3 percent to 3 1/2 percent.

Sections 1800 and 1801 of the Code impose a tax on all bonds issued by any corporation. The rate of tax is 11 cents on each $100 or fraction thereof of the face value of each bond.

It is held that the change in the interest rate of the outstanding bonds, as effected by the consolidation agreement, constitutes such a material change in the obligations as to create a new issue subject to original issue tax under sections 1800 and 1801 of the Code. The tax is due and payable on the unpaid balance of the bonds as consolidated and the necessary stamps should be affixed to the consolidation agreement and properly canceled.