- 55 -
short of demonstrating that these losses were "necessary or helpful
in profiting from difference gains". Glass v. Commissioner, 87 T.C.
at 1176. The actual trading records set forth above show that
petitioners held their initial positions for a relatively short time
before taking substantial losses. Moreover, the amount of losses
taken was generally close to the amount of the next year's gains.
These factors indicate that actual economic gains from changes in
the spread positions were not significant and, in any event, were
overshadowed by the tax losses that could be generated.
Two other factors which reflect lack of economic substance are
a correlation of losses to tax needs, coupled with a generalized
indifference to, or absence of, economic profits. Freytag v.
Commissioner, 89 T.C. 849 (1987).
Mr. Keeler's tax returns indicate that his Merit losses,
expressed as a percentage of his income before deduction of the
losses, equaled 100 percent of his adjusted gross income in the
first year at issue and 97 percent of his adjusted gross income for
the second year. In the third year, his Merit losses were minimal,
but the Merit program enabled him to defer taxation on income of
approximately $9 million. It was not until the fourth year that he
reported the substantial deferred income from the Merit
transactions. In the meantime, his indifference to, and lack of,
economic profits was marked. He persisted in the Merit programs,
despite consistent economic trading losses which totaled $706,401.
Dr. Richartz's tax returns indicate that his Merit losses,
again expressed as a percentage of income, equaled 62 percent of his
Page: Previous 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 NextLast modified: May 25, 2011