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Although the record in these cases is sketchy and not
entirely clear, it appears that the parties agree that the
transactions at issue here are factually the same as those we
addressed in the Seykota opinions.
In those opinions, we found that the FTI transactions were,
fundamentally, cash and carry tax shelters. In simplified terms,
an investor would borrow large sums of money. He would acquire
gold with the loan proceeds. He would also enter into contracts
to sell that gold at a specified time in the future. In the gold
markets, the price which the investor paid for the gold was lower
than the price at which he agreed to sell that gold in the
future. The difference between these two prices largely
reflected the amounts of interest and other carrying charges that
the investor would incur while he owned the gold. The A/C
customer would deduct the interest charges plus other carrying
charges--such as charges for management, insurance, and storage--
in the year he borrowed the money. These deductions offset other
ordinary income for that year. When he sold the gold in the next
year, the investor would report the gain at favorable capital
gains rates. The net gain approximately equaled the costs of the
interest and other carrying charges. In effect, the investor
could defer the taxation of income, at rates as high as 70
percent, for a year. He could also convert that income into
capital gains taxable at maximum rates no higher than 28 percent.
As an integral part of the FTI A/C transactions, the investors
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