- 108 -
of one another. In only 4 months did the difference between them
equal or exceed 40 basis points. During the period that ACM
planned to hold the Citicorp Notes, the coupon would be reset
only once. The historical data provide no basis for concluding
that there was any significant likelihood that an appreciable
change in the historical relationship between the 1-month
commercial paper rate and other money market indices would have
arisen on this single occasion. Accordingly, we are not
persuaded by petitioner's claim that it expected the Citicorp
Notes to increase in value by way of an increase in the related
commercial paper.
We now consider petitioner's third and final claim that it
had a high probability of recovering its transaction costs
through accumulation of interest income on the Citicorp Notes
over the period that petitioner held the notes. Petitioner and
its experts take the position that a substantial portion of the
transaction costs of the section 453 investment strategy were
likely to be recovered dollar-for-dollar through the accumulation
of interest income from the Citicorp Notes: The longer ACM held
the notes, the greater the amount of interest it received from
Citicorp, and, all other things being equal, the greater the
likelihood of earning a profit. ACM could reasonably have
expected to receive, and did receive, about $1.2 million in
interest on the Citicorp Notes over the 24 days that it held
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