-43-
the primary asset. In fact, Mr. Natenburg believes Tandrill paid
more for some of the option hedges than they could ever be worth.
The Relevant Law
Section 165(c)(2) provides that, in the case of an individual,
the deduction for losses set forth in section 165(a) is limited to
“losses incurred in any transaction entered into for profit, though
not connected with a trade or business”. Accordingly, in order for
Tandrill’s losses to be deductible, petitioners must establish that
the transactions giving rise to them were “entered into for
profit”. Fox v. Commissioner, 82 T.C. 1001, 1018 (1984); Smith v.
Commissioner, 78 T.C. 350, 390 (1982). For this purpose, “profit”
means economic profit, independent of tax savings. Surloff v.
Commissioner, 81 T.C. 210, 233 (1983).
Section 108 of the Deficit Reduction Act of 1984, Pub. L. 98-
369, 98 Stat. 494, 630, as amended by section 1808(d) of the Tax
Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2817, provides as
follows:
SEC. 108. TREATMENT OF CERTAIN LOSSES ON STRADDLES ENTERED
INTO BEFORE EFFECTIVE DATE OF ECONOMIC RECOVERY TAX ACT OF 1981.
(a) General Rule.--For purposes of the Internal
Revenue Code of 1954, in the case of any disposition of
1 or more positions--
(1) which were entered into before 1982 and form
part of a straddle, and
(2) to which the amendments made by title V of the
Economic Recovery Tax Act of 1981 do not apply,
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