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On December 17, 1991, shortly before the close of Colgate's
1991 taxable year, ACM sold the BOT LIBOR Notes to BFCE for
$10,961,581. The notes had fallen considerably in value owing to
the decline in market interest rates. Eight and one-half percent
at the time the first payment on the notes had been determined,
3-month LIBOR was below 5.7 percent when the last payment was
determined. The price at which the BOT LIBOR Notes were sold
also reflected a remarketing cost corresponding to the bid-ask
spread, equal to $440,000.
The economic loss incurred on the sale of the LIBOR Notes
was more than compensated for by the tax loss. On its Form 1065
for FYE 12/31/91, ACM reported a capital loss in the amount of
$84,997,111. Colgate claimed $84,537,479 as its own and
Southampton's combined distributive shares of this loss on its
consolidated corporation tax return for the 1991 taxable year.
By amended return, Colgate carried this loss back to 1988. The
total net tax loss that Colgate achieved through the CINS
transaction exceeded $98 million.
As a result of the consolidation of ACM on Colgate's
financial statements for 1991, Colgate's reported outstanding
long-term indebtedness declined by $124.1 million,13
13 This figure represents the aggregate face amount of
Colgate long-term debt held by the partnership ($136.6 million)
minus the decline that would have occurred in any case during
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