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First-Year Overall Economic Loss as Percent
Trader Deferral Effect of Deferral
Timmons $3,309,819 ($165,087) 4.99%
Walker 9,917,243 (367,560) 3.71
Rapien 3,232,101 (133,020) 4.12
Origlia 1,520,610 (77,390) 5.09
Keeler 689,600 (38,280) 5.55
Ultimately, the record does not reveal any basis to conclude
that the assertedly "negotiated" trades in issue were likely to
produce economic benefits aside from a tax deduction.
Petitioners' citation of isolated instances of profitable
transactions does not affect this conclusion. To the contrary, we
have consistently held that "the fact that the entire transaction
produces a nominal net gain will not impute substance into an
otherwise sham transaction." Krumhorn v. Commissioner, 103 T.C. at
55. The Merit program, like other tax straddles, turned its back
on the possibility of any meaningful profits, because its function
was the generation of early losses and the postponement of any gain.
We also take note of Merit's practice of charging bid/ask only
on the opening transaction. It may be questioned why the operators
of a market would levy a charge only on the first use of its
resources and, thereafter, permit its traders to operate free of
charge. Here, the first trade was in fact only the first link in
a prearranged chain of transactions. That is why a fee was charged
only at the outset.
Similarly, Merit's consistent practice of retaining its
clients' margin deposits in amounts larger than required--and for
periods longer than trading took place--suggests that the deposits
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