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P. SBC's Sale of Remaining Norinchukin LIBOR Note
On July 2, 1991, SBC, then Brunswick's subsidiary, sold the
remaining Norinchukin LIBOR note via a Satisfaction and
Termination Agreement with Norinchukin dated June 28, 1991.
Norinchukin paid SBC $7,040,954 for the remaining note. Merrill
Lynch arranged the transaction. Norinchukin's July 2, 1991,
payment included a LIBOR note payment of $419,262.75 due on that
same date. SBC, through Brunswick, amortized the Norinchukin
LIBOR note payment for tax purposes and reported imputed interest
as follows:
LIBOR Note Imputed
Payment Date Payment Principal Interest
July 2, 1991 $419,263 $377,684 $41,579
Brunswick determined that SBC incurred a capital loss on the
sale of the Norinchukin LIBOR note. Brunswick computed SBC's
basis in the Norinchukin LIBOR note by multiplying $166,666,667
($200 million (original cost basis of the Chase PPNs) less
$33,333,333 (the portion of cost basis of the Chase PPNs used in
computing Saba's gain on the sale of the PPNs)) by 25 percent to
account for the fact that SBC had received 1 of the 4 LIBOR notes
originally held by Saba. Under this formula, Brunswick
determined that SBC's basis in the Norinchukin LIBOR note was
$41,666,667. Brunswick reported a long-term capital loss of
$32,631,287 on its consolidated Federal income tax return for
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