- 59 -
losses for tax purposes--the trades produced uniformity. Of the 79
T-bill accounts, 4 were owned by Merit. Of the other 76, only 1
made a first-year profit--in the amount of $961. Moreover, three
of the four Merit accounts lost money as well. In the T-bond
markets, all 26 investors incurred first-year losses. In the stock
forwards market, all 52 investors incurred first-year losses. In
all the programs, economic losses far outweighed the modest economic
gains. In fact, only two of the non-Merit investors showed any
profits as a result of their overall stock forwards trading.22
C. Other Factors in the Merit Markets
A number of other factors contribute to our conclusion that the
Merit programs lacked economic substance. Merit set the prices and
controlled these markets, trading only with a small circle of savvy
trading advisers or sophisticated customers. See Freytag v.
Commissioner, 89 T.C. 849 (1987). These individuals were able to
keep up with the Merit program by using computer linkups. Merit
employees provided computerized information sufficient to guide tax-
motivated trades. The computer programs informed the advisers and
their clients of current losses and unrealized gains that could be
generated by any trade.
We have evaluated petitioners' demonstration that a number of
trades were executed for short-term capital gains instead of for
22 Investor Hindshaw showed an overall trading gain of
$5,161 (account No. 631) but deferred the tax on $275,000 in
unrealized gains through 1982 into 1983. Similarly, investor RPV
showed an overall profit of $6,365 (account No. 673). It
deferred approximately $500,000 from 1981 into 1983.
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