- 47 -
3-week period since the issuance of the LIBOR Notes, which caused
them to lose value.
6. Tax and Financial Accounting for the Results
For Federal income tax purposes, ACM treated the sale of the
Citicorp Notes as a contingent payment sale, governed by section
15a.453-1(c)(3), Temporary Income Tax Regs., 46 Fed. Reg. 10714
(Feb. 4, 1981). As there was no stated maximum selling price and
all payments on the LIBOR Notes would be received over a fixed
period of 6 taxable years, ACM recovered its basis in the
Citicorp Notes ratably over 6 years. On Form 1065, U.S.
Partnership Return of Income, for FYE 11/30/89, the
partnership reported capital gain of $110,749,239.10 The gain
was allocated among the partners in proportion to their capital
accounts as shown on the November 30, 1989, revaluation
worksheet: $91,516,689 to Kannex, $18,908,407 to Southampton,
and $324,144 to MLCS. The parties to this proceeding have agreed
that the partnership's tax basis in the LIBOR Notes immediately
after the sale was $146,253,803, an amount that exceeded the cost
of the Notes by the gain recognized on the sale.
10 ACM computed the gain as follows:
Payments received in FYE 11/30/89 $140,000,000
Basis recovered in FYE 11/30/89
Citicorp Note basis plus
accrued interest 175,504,564
Portion allocable to
FYE 11/30/89 (1/6) (29,250,761)
Capital gain 110,749,239
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