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(the transactions were "shams" and/or were not "bona fide"). Mr.
and Mrs. Hemmings filed petitions in which it is alleged that the
transactions were not shams and were bona fide. In the answers,
respondent denied these allegations. Once section 6013(e) was
raised, the positions of the parties underwent a radical
metamorphosis.
On one hand, Mrs. Hemmings argues that these transactions
are similar to those encountered in Freytag v. Commissioner, 89
T.C. 849 (1987), affd. 904 F.2d 1011 (5th Cir. 1990), affd. on
other issues 501 U.S. 868 (1991), where the Court determined that
transactions involving straddles of Ginnie Maes and other
financial instruments were illusory, fictitious, and not bona
fide. Respondent, on the other hand, does not seek to
characterize the transactions, but rather takes the position that
Mrs. Hemmings has not shown that the transactions are of the
nature of those discussed in Freytag.
In Freytag the Court found that the First Western Government
Securities (First Western) trading program involving straddles of
forward contracts was not bona fide. This finding was based on a
number of "gremlins" in the program. Among the more salient
gremlins were the following: The customers' out-of-pocket losses
were limited to the amounts paid; the amounts paid to the so-
called margin account determined the fees paid; the starting
point for the alleged trading program was the amount of tax
losses that were requested by the customer; the lack of
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