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Management Investment Co. Mr. Hemmings did not understand how
the trading programs worked.
The starting point of these transactions was determining the
amount of losses that needed to be generated in order to
substantially reduce or eliminate the Hemmingses' taxable income.
Mr. Harris supplied these figures to ACLI and/or ELMS. Mr.
Hemmings was told that he would not make a profit from these
transactions, and that, in return for the fees paid, losses would
be produced to defer taxes, followed by the realization of
capital gains in future years in amounts commensurate with the
losses. The purpose of the transactions was to shelter income.
Unlike other commodities or financial instrument transactions,
Mr. Hemmings was not required to maintain a margin account, and,
other than the initial fees paid for the program, there was no
risk of loss from the purported trading. Also, unlike other
futures transactions, Mr. Hemmings was not consulted when changes
were made in these accounts. Changes in the programs were made
under a power of attorney held by the sponsor of the programs.
The Hemmingses settled most of the issues involving the
taxable years 1978 to 1980. They conceded the losses claimed
from the ACLI and ELMS transactions and paid approximately
$3,500,000 in taxes and interest. In deciding to settle the tax
issues arising from the ACLI and ELMS transactions, Mr. Hemmings
became convinced that the purported transactions never took
place.
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