Estate of Leon Israel, Jr., Deceased, Barry W. Gray, Executor, and Audrey H. Israel - Page 12

           paid AGS a “cancellation” fee equal to and representing the loss                           
           that had been realized on just that leg of the straddle (and                               
           without taking into account the offsetting gain that also was                              
           realized and locked in as of that point in time via the                                    
           replacement leg of the straddle), which cancellation fee                                   
           represented the loss realized on the loss leg that was closed.                             
                 The closing or liquidation of loss legs of forward contracts                         
           by way of offset or by way of "cancellation" (and whether or not                           
           "cancellation" is followed by replacement contracts) is                                    
           economically the same.  Where "cancellation" of loss legs is                               
           followed by replacement contracts, the replacement contracts                               
           simply serve to lock in the offsetting gain on other legs of the                           
           straddle that has occurred from the day the straddle was first                             
           entered into until the day the loss legs are closed.  The                                  
           replacement contracts simply relate to the need to lock in the                             
           large gain in order to offset the large loss that is going to be                           
           claimed for tax purposes.  The replacement contracts in no way                             
           alter the character of the loss realized on the legs that are                              
                 Holly typically, in the following year, closed the gain legs                         
           of the straddle transactions by offset in order to qualify the                             
           gain as capital gain.                                                                      
                 The so-called cancellation fees that were due on closing the                         
           loss legs of forward contracts (at least with regard to the first                          
           and second groups of forward contracts in issue) were not paid by                          

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