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F. Brunswick's Sale of LIBOR Notes
On November 5, 1990, Brunswick and Merrill Lynch executed a
letter agreement under which Merrill Lynch agreed to serve as
Brunswick's exclusive agent to arrange for the sale of the 4
Sumitomo LIBOR notes.
On November 28, 1990, Brunswick sold the 4 Sumitomo LIBOR
notes to BFCE for $17,458,827. Merrill Lynch arranged the
transaction. Brunswick determined that it incurred a capital
loss on the sale of the Sumitomo LIBOR notes. Brunswick
determined that its basis in the 4 LIBOR notes was equal to the
unused portion of Otrabanda's basis in the IBJ CDs or
$83,333,333: ($100,000,000 (Otrabanda's cost basis in the IBJ
CDs) less $16,666,667 (the portion of Otrabanda's cost basis used
in computing Otrabanda's gain on the sale of the IBJ CDs)).
On its consolidated Federal income tax return for 1990,
Brunswick reported a net short-term capital loss of $60,174,506
attributable to Otrabanda. The $60,174,506 net short-term
capital loss consists of the difference between Brunswick's
purported basis in the 4 Sumitomo LIBOR notes and the sales price
of the notes, less Brunswick's distributive share of the gain
reported by Otrabanda on the sale of the IBJ CDs: ($83,333,333 -
$17,458,827) - $5,700,000 = $60,174,506.
On its consolidated Federal income tax return for 1990,
Brunswick reported Skokie’s distributive share of the gain
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