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(2) 1981 Transactions
(a) T-Bond Options
In its next taxable year, Merit closed out its remaining T-
bond option contracts and ended its participation in the T-bond
program. These transactions generated short-term capital gains of
$1,091,479.16, or an apparent overall gain on T-bond trading of
$244,742.
(b) T-Bill Options
Merit's trading in T-bill options began later in Merit's 1981
taxable year. Merit used four accounts.
By far the largest of Merit's T-bill trading volume--hundreds
of trades with many of its customers--occurred in account No. 219.
Merit opened account No. 219 on December 26, 1980, with 62 trades
which constituted 31 spread transactions. Merit's only taxable
transactions during the calendar year occurred 4 days later, on
December 30, 1980. In one of two switch transactions, Merit
realized a gain of $50,050 in a switch of 11 T-bill option
contracts with a customer identified as RPV. The other transaction
yielded a loss of $18,236 in a trade with G & G Associates.
Many of the trades involving account No. 219 terminated early
in January 1981, when Merit's customers realized the corresponding
gains that related to their December losses and claimed deductions
in their 1980 taxable years. By January 7, 1981, Merit's
cumulative realized gain in account No. 219 stood at $6,598.
Account No. 219 remained inactive until May, and its realized gain
figure remained at $6,598 until June 30, 1981. On that date, the
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