Saba Partnership, Brunswick Corporation, Tax Matters Partnership - Page 18




                                       - 107 -                                        
              Petitioner's reliance on Cottage Sav. Association v.                    
         Commissioner, 499 U.S. 554 (1991), likewise is misplaced.                    
         Petitioner contends that the disputed CINS transactions must be              
         respected for tax purposes inasmuch as they were structured and              
         carried out in strict compliance with the requirements of                    
         sections 1001 and 453.                                                       
              In Cottage Sav. Association v. Commissioner, supra, the                 
         taxpayer, a savings and loan association, owned participation                
         interests in mortgages that had declined in value due to a surge             
         in interest rates during the late 1970s.  After holding the                  
         participation interests for a number of years, the taxpayer sold             
         them to several savings and loan associations and purchased from             
         them participation interests in mortgages of approximately equal             
         fair market value.  The taxpayer claimed a $2.4 million loss                 
         deduction equal to the excess of its bases in the participation              
         interests that it sold over the fair market value of the                     
         participation interests that it purchased.                                   
              The Commissioner disallowed the claimed loss on alternative             
         grounds:  (1) The taxpayer had not realized the losses within the            
         meaning of regulations promulgated under section 1001; and (2)               
         the transactions lacked economic substance.  However, the Supreme            
         Court sustained the taxpayer's loss deduction, holding that the              
         taxpayer had realized a loss pursuant to section 1001 because the            
         participation interests exchanged were "materially different"                






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