- 111 -
profits which might be realized from the trading of the
commodities." Id. at 485-486.
Based on those factors, we concluded: "It seems clear that
LACO was receiving a share of the profits in return for its
management services, and the gains it realized are ordinary
income both to LACO and to * * * [the taxpayers] composing LACO."
Id. at 486. We then applied a similar analysis with regard to
the Individual Trading Accounts and sustained respondent’s
determination that LACO’s share of the profits was compensation
for services. Id. at 487. The Court of Appeals affirmed our
ruling on that issue "both with respect to the individual
investor accounts and the funds". 313 F.2d at 737.
In the instant case, as to the proper amount of interest
income, we agree with petitioners that the interest earned by
LTD’s clients is not income to LTD. We conclude that LTD
functioned in a manner not unlike LACO in Estate of Smith, where
LACO, as the investment manager, was taxed only on its "share of
the profits", not on the entire gains derived from the trading.
33 T.C. at 486. In the instant case, LTD purchased the
certificates of deposit or made bank deposits in its own name as
attorney in fact for its clients. LTD invested little, if any,
money of its own. LTD had no economic interest in the
certificates of deposit or bank deposits and only had an interest
in the spread between the rates earned from the investments and
the rates paid by LTD to its clients. Upon collecting the
Page: Previous 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 NextLast modified: May 25, 2011