- 68 -
bills that would yield ordinary losses and stock forwards which
promised ordinary losses with "cancellations". We believe that such
investors would not invest in new and untried ventures in marketing
options in Treasury obligations or stock forwards unless they would
benefit from prompt and sizable tax deductions. Their arguments
about economic possibilities are self-serving and unconvincing. The
tax returns reflect that they accomplished what they set out to do--
obtain first-year deductions from their spread positions and
postpone gains. Other objective facts, including the tax-flavored
aspect of the instruments involved, their almost immediate
disposition for tax losses, and the investors' substantial
indifference to profits all combine to show that petitioners'
primary objective was obtaining tax benefits. We, therefore,
conclude that because petitioners lacked a "primarily for profit"
motive, they failed to meet the statutory requirements for deducting
the losses at issue.26
26 We note that none of the individual petitioners have
claimed coverage of the per se rule applicable to commodities
dealers; that is, that any loss incurred "shall be treated as a
loss incurred in a trade or business". TRA sec. 1808(d).
Citing cases such as International Trading Co. v.
Commissioner, 484 F.2d 707 (7th Cir. 1973), revg. and remanding
57 T.C. 455 (1971), petitioner Leema argues that, as a
corporation, it need not demonstrate that it was in a trade or
business or otherwise engaged in an activity primarily for
profit. Our conclusion that the Merit trades lacked economic
substance vitiates any claim that petitioners might make under
either the per se rule or International Trading Co. "[E]conomic
substance is a prerequisite to the application of any Code
provisions allowing deductions". Lerman v. Commissioner, 939
F.2d 44, 52 (3d Cir. 1991), affg. Fox v. Commissioner, T.C. Memo.
1988-570.
Page: Previous 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 NextLast modified: May 25, 2011