Leema Enterprises, Inc. - Page 63




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          First-Year  Gain Deferred   Overall Economic    Economic Cost as            
          Tax Loss   to Second Year        Cost        Percent of Tax Loss            
          $689,600    $667,685.40       ($38,280)            5.55%                    
               The above transactions reflect the actual economic substance           
          of petitioner Keeler's investments in Merit's T-bill options.  They         
          demonstrate that tax deferrals were the object of the trades, and           
          that there were no economic profits.  The actual economic costs were        
          minimal when compared with the tax deferrals; in reality, the               
          economic losses represent a cost of obtaining tax benefits.                 
               A more extensive examination of trade No. 74 underscores this          
          point.  Five investors, other than Merit itself, engaged in trade           
          No. 74.  Three of them, including petitioner Keeler, incurred               
          economic losses, but the other two can show that their trades in            
          trade No. 74 produced modest profits of approximately $3,000 each--         
          at least before commissions and forgone interest on margin accounts         
          are taken into account.  In the context of this single trade, these         
          modest profits might be some evidence of economic substance.                
          Petitioners have made such arguments, pointing out occasional               
          positive changes in investors' Merit accounts.  These arguments,            
          however, do not hold up when they are considered in the context of          
          the investors' total T-bill trading.  With the exception of                 
          petitioner Keeler, four other non-Merit investors engaged in T-bill         
          trading sequences in addition to trade No. 74.  When all five               
          investors' overall trading in the T-bill market is considered, the          
          pattern of consistent yearend tax deferrals and overall economic            
          profits becomes obvious:                                                    


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Last modified: May 25, 2011