by a corresponding increase in the rate of interest on the other loan. The taxpayer company proceeded to drop the interest on one loan to nothing, transferring the interest from it to the other, thus bringing the second loan to a 22% interest rate. The third company exercised its right to pay down the no-interest loan prematurely but still had the 22% loan on its books. The taxpayer company, which treated that loan as an asset, discounted it, presumably to the bank, thus receiving a gain on that sale. Meanwhile, after paying off the no-interest loan and now putatively burdened with the high-interest loan, the value of the shares in the company decreased. The taxpayer company thereupon sold the shares in that third company at a loss, claiming a tax benefit as a consequence of the loss on that sale (after Tiley 331).
What is important to Ramsay is that the sale of the third company's shares--at a loss--was the taxpayer's original intention all the time, and that it was meant to correspond to the "loss" of the prepayment of the no-interest loan. It could be s
...