Wechsler & Co., Inc. - Page 25
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Petitioner did not pay any interest to Mr. Wechsler with
respect to either the above cash loans or the securities loan.
Petitioner’s 1992 Through 1999 Tax Returns and FOCUS Reports
For its 1992 through 1999 fiscal years, petitioner prepared
its Federal income tax returns using an accrual method of
accounting. Under that method, securities petitioner held in
investment accounts were reflected on the tax return balance
sheet at cost and not at fair market value. Up until its 1994
return, petitioner for tax purposes generally carried its
securities positions in trading accounts at the lower of cost or
market. In 1993, the mark-to-market rules of section 475 were
added to the Internal Revenue Code by the Omnibus Budget
Reconciliation Act of 1993, Pub. L. 103-66, sec. 13223, 107 Stat.
481, effective for taxable years ending on or after December 30,
1993. Beginning with its 1994 return, petitioner marked to
market all securities held in trading accounts daily, so that
immediate realization and recognition of gain or loss resulted.
Petitioner’s annual FOCUS reports for its 1992 through 1999
fiscal years incorporate petitioner’s audited financial
statements, which were required to be prepared in accordance with
generally accepted accounting principles (GAAP). Those audited
financial statements were prepared in accordance with GAAP except
to the extent the balance sheets failed to list as a liability
petitioner’s deferred taxes computed in accordance with GAAP.
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