ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 139

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               Since the overall transaction must have economic substance             
          for the Federal tax statutes to apply, we first consider whether            
          the section 453 investment strategy had economic substance.                 
          Petitioner concedes that the section 453 investment strategy was            
          tax motivated, but argues that tax-independent considerations               
          informed and justified each step of the strategy.  Petitioner               
          explains ACM's investment in the Citicorp Notes as follows:                 
          "[T]he ACM partners believed the Citicorp Notes offered a                   
          reasonable return on ACM's investment until such time as ACM                
          might require cash for the purchase of Colgate debt".  The                  
          Citicorp Notes were sold after 24 days to enable the partnership            
          to invest in Colgate debt and LIBOR Notes.  Petitioner argues               
          that the investment in LIBOR Notes had two purposes.  First,                
          unlike an interest rate swap, which ACM could have used as an               
          alternative hedging instrument, the LIBOR Notes provided the                
          partners with an investment return.  According to petitioner,               
          "there was a realistic prospect that ACM would have made a profit           
          on the LIBOR Notes."  Petitioner contends that ACM disposed of              
          the BFCE Notes and the BOT Notes when the hedging protection was            
          no longer needed.  Second, ACM invested in LIBOR Notes because it           
          was "within the four corners of the partnership to operate as a             
          hedge".                                                                     
               In light of each of these stated purposes, we examine the              
          economic substance of the section 453 investment strategy.                  






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