Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 63-59

1963-1 C.B. 144

Sec. 1331

IRS Headnote

The recovery date of war losses sustained by the holders of certain prewar German and Japanese dollar bonds, and certain debenture bonds of private German corporations, acquired by the holder prior to December 11, 1941, is a question of fact and will not necessarily be deemed to be the date on which the restrictions against trading in such bonds were removed.

Revenue Rulings 54, C.B. 1953-1, 204;  54-501, C.B. 1954-2, 197; and 58-397, C.B. 1958-2, 412, modified.

Full Text

Rev. Rul. 63-59

Further consideration has been given to Revenue Rulings 54, C.B. 1953-1, 204; 54-501, C.B. 1954-2, 197; and 58-397, C.B. 1958-2, 412, in the light of the decision of the Tax Court of the United States in the case of George C. Dix, et ux v. Commissioner, 34 T.C. 837 (1960), relating to the recovery date of war losses sustained by the holders of certain prewar German dollar bonds.

Revenue Ruling 54-501 holds, in part, that certain prewar German dollar bonds, acquired prior to December 11, 1941, and held on January 11, 1954, the date the restrictions against trading in such bonds were removed, were recovered on the latter date within the meaning of section 127(c) of the Internal Revenue Code of 1939 (section 1331 of the Internal Revenue Code of 1954). The ruling further states that the fact that a bond is not validated until after January 11, 1954, is not sufficient grounds for postponing the recovery date inasmuch as the subsequent validation would simply confirm the fact that the bond was valid on the recovery date.

Revenue Ruling 58-397, C.B. 1958-2, 412, which relates to the Federal income tax treatment of the recovery of certain debenture bonds of a private German corporation and the exchange of the debentures recovered, holds, in part, that the debentures involved therein were recovered on January 11, 1954, the date the restrictions against trading in such debentures were removed. This holding is expressly based on the assumption that there was no effective market for the securities during the existence of the trade restrictions.

Revenue Ruling 54, C.B. 1953-1, 204, holds, in part, that recovery of war losses sustained by holders of certain prewar Japanese dollar bonds occurred, for the purposes of section 127(c) of the 1939 Code, on November 11, 1950, the date the Securities and Exchange Commission removed the restrictions against trading in those bonds.

In the Dix case the court held, on the facts,  that the recovery date of certain prewar German dollar bonds, of the type described in Revenue Ruling 54-501, was no later than early December 1953, the time of the deposit of the bonds for validation pursuant to the agreement with the new German government for the resumption of payments. The court did not say which of the long series of steps leading to this ultimate accomplishment might be considered decisive, but stated that, at least, by the time the taxpayer's bonds were submitted for validation early in December 1953, with the assurance that they would be accepted and returned, all the necessary steps to the recovery had been taken.

In the Dix case the court was concerned only with bonds of the type considered in Revenue Ruling 54-501. However, the court's reasoning would be equally applicable in determining the recovery date of bonds of the type described in Revenue Ruling 54 or Revenue Ruling 58-397.

Accordingly, it is held that the recovery date of war losses sustained on the bonds described in Revenue Rulings 54, 54-501 and 58-397 is a question of fact and will not necessarily be deemed to be the date on which the restrictions against trading in such bonds were removed.

Revenue Rulings 54, C.B. 1953-1, 204;  54-501, C.B. 1954-2, 197; and 58-397, C.B. 1958-2, 412, are hereby modified to remove from those rulings the implication that the war losses sustained on the bonds described therein could not be recovered prior to the date of the removal of restrictions on trading in such bonds.

Concurrent with this change of position, the Internal Revenue Service is acquiescing in the Tax Court decision in the Dix case. See page 4 of this Bulletin.