Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 70-33

1970-1 C.B. 140

IRS Headnote

The loss provisions of section 582(c) of the Code are applicable only with respect to securities held by a bank for investment purposes and not to securities held as a dealer in securities; I.T. 4031 superseded.

Full Text

Rev. Rul. 70-33 /1/

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in I.T. 4031, C.B. 1950-2, 43.

The question presented is whether the securities mentioned in section 582(c) of the Internal Revenue Code of 1954, relating to losses of banks, include all of such securities held by a bank or only such securities as are held for investment purposes. Section 582(c) of the Code provides as follows:

(c) Bond, Etc., Losses of Banks.--For purposes of this subtitle, in the case of a bank, if the losses of the taxable year from sales or exchanges of bonds, debentures, notes, or certificates, or other evidences of indebtedness, issued by any corporation (including one issued by a government or political subdivision thereof), exceed the gains of the taxable year from such sales or exchanges, no such sale or exchange shall be considered a sale or exchange of a capital asset.

House Report No. 2332, Seventy-seventh Congress, C.B. 1942-2, 372, at 399, relating to section 117(i) of the Internal Revenue Code of 1939 (now section 582(c) of the 1954 Code), includes the following statement:

Special treatment is recommended for banks and insurance companies, since bonds are a necessary type of investment for them. For banks, net capital losses attributable to sales or exchanges of bonds or other evidences of indebtedness are allowed in full against other income, the capital loss to be measured by the difference between the purchase price (or amortized value) and the selling price. Losses from other types of capital assets and all gains would be treated the same for banks as for other corporate taxpayers.

In that same report, on page 445, C.B. 1942-2, it is stated that "In the case of banks * * *, a distinction is to be made with respect to losses resulting from sales or exchanges of bonds, debentures, notes, or certificates or other evidences of indebtedness which are in excess of gains from sales or exchanges of such assets. In that case the excess is to be considered as an ordinary loss and deductible in full against other income."

It is apparent from the foregoing excerpts (which refer only to bonds, debentures, etc., that are held as capital assets) that section 117(i) of the 1939 Code (now section 582(c) of the 1954 Code) was intended to include only such securities described therein as are held as capital assets.

Accordingly, it is held that the provisions of section 582(c) of the Code are applicable only with respect to the securities described therein that are held by a bank for investment purposes. Those provisions are not applicable with respect to such securities that are held by a bank as a dealer in securities.

Section 1236 of the Code describes the manner in which dealers in securities should report their gain or loss from the sale of securities.

I.T. 4031 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.