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deductible. It is not clear, however, whether this mistake was
based on an erroneous conclusion of fact or law. For example, if
the Conti transactions never took place, i.e., they were "factual
shams", it is arguable the mistake was predicated on an erroneous
factual conclusion. On the other hand, if the transactions did
take place but would not be recognized because they were not
entered into primarily for profit, the mistake was not one of
fact, but of the legal consequences of the facts. See, e.g.,
Freytag v. Commissioner, 904 F.2d 1011 (5th Cir. 1990), affd. on
other issues 501 U.S. 868 (1991), affg. 89 T.C. 849 (1987);
Goldstein v. Commissioner, 364 F.2d 734 (2d Cir. 1966), affg. 44
T.C. 284 (1965).
With the records that we have, petitioners concede that the
Conti transactions "have no effect for tax purposes, and
Petitioners will not recognize any gains, losses, income or
expenses arising from transactions in non-regulated government
securities traded by Conti". But, we do not know the basis of
this concession. Petitioners have consistently maintained that a
great number of the Conti transactions actually took place.
Further, while petitioners' cases in the Multi-District
Litigation involving Conti were settled, the court there found
that petitioners could not identify so-called bad or sham
transactions. In re ContiCommodity Services, Inc. Securities
Lit., 733 F. Supp. 1555, 1564 (N.D. Ill. 1990), revd. on other
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