- 119 -
notes. Further, the partnerships may have been exposed to some
financial risk as a consequence of investing in the PPNs and CDs,
although such risk was minimized insofar as Saba and Otrabanda
had invested their funds with highly rated banks and both had the
option to put or sell the PPNs and CDs back to Chase and IBJ,
respectively, at their original purchase prices with accrued
interest. Nevertheless, the partnerships' ownership of the PPNs,
CDs, and LIBOR notes does not establish that the CINS
transactions possessed "purpose, substance, or utility apart from
their anticipated tax consequences". Goldstein v. Commissioner,
364 F.2d 734, 740 (2d Cir. 1966), affg. 44 T.C. 284 (1965); see
Sheldon v. Commissioner, 94 T.C. 738, 759-760 (1990).
Petitioner maintains that the CINS transactions appreciably
affected the partnerships' beneficial interests in light of the
potential for the LIBOR notes to appreciate in value if interest
rates were to rise. Consistent with the Supreme Court's
admonition to "[fix] the character of the proceeding by what
actually occurred", Gregory v. Helvering, 293 U.S. at 469, we
will briefly summarize the financial results of the CINS
transactions before proceeding with our analysis.
Saba's CINS Transaction
On February 28, 1990, Saba's partners made capital
contributions totaling $200 million. On the same day, Saba
invested $200 million in the Chase PPNs. On March 21, 1990,
Page: Previous 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 NextLast modified: May 25, 2011