Alling v. Comm'r of Internal Revenue
| Citation | 102 T.C. 323,102 T.C. No. 10 |
| Decision Date | 24 February 1994 |
| Docket Number | 29996–85,29586–84,37132–84,Nos. 6197–84,41809–85 and 39519–86.,5676–85,31737–84,15748–84,s. 6197–84 |
| Parties | Frederick A. and Martha G. ALLING, et al.,1 Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
Hugh Janow, for petitioners.
Theodore J. Kletnick and Maria T. Stabile, for respondent.
Ps deducted straddle losses in years for which deficiencies are now barred by the statute of limitations. They seek to exclude straddle gains in a later open year by the amount of such losses. The parties have stipulated that the transactions in which Ps engaged were the same as those at issue in Fox v. Commissioner, 82 T.C. 1001 (1984), and that they were not entered into for profit. Held, the phrase “to accurately reflect the taxpayer's net gain or loss from all positions in such straddle” modifies the phrase “not allowable as a deduction” and does not permit Ps to offset the straddle losses from closed years, which are otherwise not allowable losses, against reported gains in an open year under sec. 108(c) of the Deficit Reduction Act of 1984, Pub.L. 98–369, 98 Stat. 494, 630, sec. 1808(d) of the Tax Reform Act of 1986, Pub.L. 99–514, 100 Stat. 2817, since the losses already taken and the offset attempted would be an effective double deduction and would not “accurately reflect” the total straddle transaction. Held, further, Ps' contention that such gains should be excluded because respondent was inconsistent in excluding other straddle gains in the years before the Court is rejected.
The parties having settled all but one issue, this case comes before the Court fully stipulated under Rule 122 2 by certain petitioners, on the issue of the tax treatment of the gains in the years involved herein from commodity tax straddles where the losses from those straddles were improperly deducted in the previous year but cannot be disallowed due to the statute of limitations.
The transactions in question were of the same type and essentially the same transactions at issue in Fox v. Commissioner, 82 T.C. 1001 (1984) ( Fox transactions), and all involved the Arbitrage Management Investment Company (AMIC).
Petitioners with respect to whom this issue is to be resolved, their residences at the time of filing of their petitions, and the years and amounts of the deficiencies determined against them by respondent are as follows:
+-----------------------------------------------------------------------------+
¦Docket ¦Petitioner ¦Residence ¦Year¦Deficiency ¦
¦No. ¦ ¦ ¦ ¦1 ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦ ¦ ¦ ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦6197–84 ¦Milton and Blanche Wasserberger ¦Fort Lee, New ¦1979¦$ 23,609.00¦
¦ ¦ ¦Jersey ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦ ¦Estate of Jerome Casser, Deceased, ¦ ¦ ¦ ¦
¦15748–84¦Barry Casser, Executor, Estate of ¦Englewood, New ¦1979¦25,568.00 ¦
¦ ¦Charlotte Casser, Deceased, Barry ¦Jersey ¦ ¦ ¦
¦ ¦Casser, Executor ¦ ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦29586–84¦Joseph and Alda Casser ¦Joseph—Closter,¦1979¦26,366.00 ¦
¦ ¦ ¦New Jersey ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦ ¦ ¦Alda—Norwood ¦ ¦ ¦
¦ ¦ ¦New Jersey ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦31737–84¦Roy and Antoinette Chapman ¦Rego Park, New ¦1980¦17,589.52 ¦
¦ ¦ ¦York ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦37132–84¦Rony and Ellen ¦West Hempstead,¦1979¦34,355.00 ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦ ¦Kessler ¦New York ¦1980¦17,512.00 ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦5676–85 ¦Conrad K. Sterrett ¦New York, N.Y. ¦1978¦50,057.00 ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦ ¦ ¦ ¦1979¦22,283.00 ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦29996–85¦Donald and Marguerite Toresco ¦Watchung, New ¦1979¦78,793.00 ¦
¦ ¦ ¦Jersey ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦ ¦Estate of Mary L. Burkholder, ¦ ¦ ¦ ¦
¦41809–85¦Deceased, Guy S. Burkholder, II, ¦Lancaster, Pa. ¦1979¦34,093.00 ¦
¦ ¦Executor, and John J. Burkholder, ¦ ¦ ¦ ¦
¦ ¦Jr., Executor ¦ ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦39519–86¦Charles Diamond and Hana Diamond ¦Great Neck, New¦1977¦107,155.00 ¦
¦ ¦ ¦York ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦45975–86¦Ubaldo and Nellie Gonzalez ¦Commack, New ¦1979¦11,473.00 ¦
¦ ¦ ¦York ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦ ¦ ¦ ¦1980¦3,305.00 ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦29527–87¦Benjamin and Judith Handelman ¦New York, New ¦1980¦72,293.00 ¦
¦ ¦ ¦York ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦ ¦ ¦ ¦1981¦25,871.00 ¦
+--------+-----------------------------------+---------------+----------------¦
¦ ¦ ¦ ¦[overassessment]¦
+--------+-----------------------------------+---------------+----------------¦
¦27523–88¦Beno and Lisa Sternlicht ¦Schenectady, ¦1980¦100,350.00 ¦
¦ ¦ ¦New York ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦5214–89 ¦Herbert and Irene Freiman ¦Merrick, New ¦1980¦188,738.00 ¦
¦ ¦ ¦York ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦22733–90¦Gerald D. Vogel ¦New York, New ¦1980¦353,015.00 ¦
¦ ¦ ¦York ¦ ¦ ¦
+--------+-----------------------------------+---------------+----+-----------¦
¦ ¦ ¦ ¦1981¦289,090.00 ¦
+-----------------------------------------------------------------------------+
In accordance with the stipulation of the parties, the Findings of Fact adopted by the Court in Fox v. Commissioner, supra, are incorporated by reference, including the fact that the transactions involved herein were not entered into primarily for profit purposes as required by section 165. To facilitate understanding of our analysis, further facts stipulated by the parties are hereinafter set forth.
The off exchange market in which the trades at issue were executed was unique and specialized and was created and administered by a brokerage firm known as AMIC. The AMIC market was characterized by features unusual for options markets, such as tying options to specific Treasury bills, trading primarily in put options, and trading only in vertical put option spreads.
Trading by customers of AMIC in over-the-counter Treasury bill options displayed distinct patterns: (1) Trading was markedly seasonal, i.e., the bulk of all trades was executed in November, December, and then in January of the following year; (2) the customers of AMIC commonly engaged in identical trading sequences; and (3) very few customers realized net economic profits on their transactions in vertical put options.
At all times relevant to these cases, AMIC executed trades almost exclusively between and among its own customers and not with outside parties.
The basic tax strategy, or template, generally utilized in the AMIC market was comprised of a series of transactions, as follows:
(1) In the fall of the initial year (year I), the participant establishes a spread comprised of a long T-bill put option (for example, long 97.75, expiration 3/28/79 3) and a short T-bill put option (for example, short 97.625, expiration 3/28/79). This is commonly referred to as the initiation step.
(2) Later that same year, the participant closes the long T-bill put option position (the long 97.75, expiration 3/28/79) through offset using a short T-bill put option (short 97.75, expiration 3/28/79) and simultaneously establishes a new, slightly different long position (for example, long 98.8125, expiration 3/28/79). This is commonly referred to as the “switch” step. For tax purposes and brokerage accounting, the short position described in this paragraph (2) closed the long position referred to in paragraph (1) (long 97.75, expiration 3/28/79) and the short...
To continue reading
Request your trial
-
Thrifty Oil Co. & Subsidiaries v. Commissioner
... THRIFTY OIL CO. & SUBSIDIARIES, Petitioner ... COMMISSIONER OF INTERNAL REVENUE, Respondent ... 139 T.C. No. 6 ... Docket No. 1376-10 ... See Alling v. Commissioner , 102 T.C. 323, 333 (1994), aff'd without published ... ...
-
Nolte v. Commissioner
... ... Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue. All Rule references are to ... 350 (1982), but which respondent continued to take. See Alling v. Commissioner [Dec. 49,683], 102 T.C. 323, 331 (1994); H. Rept. 98-861 ... ...
-
Spencer Medical Associates v. Commissioner
... ... Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are ... See also Alling v. Commissioner [Dec. 49,683], 102 T.C. 323, 333-336 (1994), affd. without ... ...
-
Stirling v. Commissioner, Docket No. 21090-93.
... ... See Alling v. Commissioner [Dec. 49,683], 102 T.C. 323, 332 (1994) ... than to the alleged paper printing business that had no gross revenue during those years ... In effect, petitioner has provided ... --------------- ... 1. All section references are to the Internal Revenue Code in effect for the tax year at issue, unless otherwise stated ... ...