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We thus decline petitioners' invitation to give effect to
alleged negotiations that, compared to the manifest tax advantages,
mattered very little to the parties. Petitioners' reply brief sets
forth a detailed example of the effect of negotiations on the
pricing of T-bills in trade No. 74. It focuses upon a combination
spread between petitioner Keeler and another investor. In that
spread, the formula strike prices per T-bill were $89.14 and $89.02
for the respective legs. Petitioners urge that negotiated changes
produced actual prices of $89.01 and $88.89, respectively. They
demonstrate that, if the market moved to a price of $89.05, the
negotiations would produce an 18-cent change in the price of a T-
bill option spread.
We accept that negotiations for strike prices could, in theory,
produce an economic effect. Petitioner's example, however, fails
to demonstrate that, from an objective standpoint, the transaction
was likely to produce economic benefits aside from a tax deduction.
See Casebeer v. Commissioner, 909 F.2d 1360 (9th Cir. 1990).
The trading in account No. 74 began on November 21, 1980; it
ended on January 5, 1981. During the 45 days of its existence,
recorded trades took place on 3 days--the open-switch-close days.
For petitioner Keeler, the results were as follows:
24(...continued)
dividend data that Merit used to compute its formula prices are
unavailable. Thus, the validity of the prices actually charged--
to the extent it is relevant--cannot be verified.
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