Broker called to inform that a $160,000 bond had been called. This was part of reinvested ESOP proceeds to defer the gain as per Sec. 1042.

I have reviewed Code Sec. 1042 and cannot find an exception that will prevent the taxation of the disposition. Sec. 1042 does except the taxation of replacement property in the events of disposition at death, dispositions by gift, a reorganization under Code Sec. 368 and a subsequent sale of the replacement property to an ESOP.

Please note that he did not sell the bonds. They were called by the issuer. These bonds had an expected 20 year term I believe. So, there was the expected outcome of the bonds being taxable if there wasn't a death first, etc.


Does this become taxable event where the replacement securities are unilaterally disposed of by the issuer?

Hi csk ---

It's a taxable event. The taxpayer should have considered the possibility of the bond's being called early (a common occurrence for callable bonds) prior to designating it as replacement property.