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c. Tandrill’s Overall Tax Strategy
The purpose of Tandrill’s investment strategy was to generate
losses from the loss legs of its Treasury bill option spreads that
would be deductible by petitioners as ordinary losses in 1979 and
to generate a corresponding (though somewhat smaller) amount of gain
from the profit legs of the option spreads that would be taxable as
short-term capital gains. From its futures straddles, Tandrill’s
purpose was to generate short-term capital losses in 1979 that would
offset the short-term capital gains generated by the Treasury bill
options transactions, and to defer the recognition of gain from the
profit legs of such commodity futures straddles until a subsequent
year. The gain was carried forward into 1980 and realized as long-
term capital gain. A similar approach was used to defer capital-
gain income from 1980 into 1981. Such strategy was employed to
produce in substance an economic loss on a long-term basis.
We agree with respondent that Tandrill’s options transactions
employed a character-mismatching strategy similar to the 1977
options spreads in Fox v. Commissioner, 82 T.C. 1001 (1984). The
loss on the loss leg of each option spread would be an ordinary
loss; the profit on the gain leg would be a short-term capital gain.
The ordinary losses Tandrill reported on its Form 1065 for 1979
arose from Treasury bill options transactions (and, to a minor
extent, from deductions for management and accounting fees). The
losses from Treasury bill transactions for 1979 amounted to
$1,858,743 and arose from purchased put options that were closed out
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