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The $25,000 item was labeled "incorporation fee". In addition,
respondent disallowed a deduction of $120,266 that Saba had
reported for amounts paid to Cravath, Swaine & Moore during the
taxable year ended March 31, 1991, as well as the amortization of
$1,500 and $8,500 attributable to amounts paid to Cravath, Swaine
& Moore for the taxable years ended March 31, 1991 and June 21,
1992, respectively. Respondent determined that the disallowed
amounts had not been substantiated and that petitioner had failed
to demonstrate that the amounts represented ordinary and
necessary business expenses.
Respondent made several alternative determinations in the
event the Court were to recognize Saba as a partnership for
Federal income tax purposes. Respondent determined in pertinent
part: (1) No gain or loss would be recognized on the purchase
and sale of the Chase PPNs because the transactions lacked
economic substance; and (2) Saba’s bases in the LIBOR notes
distributed to Brunswick and SBC were $26,601,451 and $7,032,954,
respectively.
B. Otrabanda FPAA
On December 30, 1996, respondent issued an FPAA to
Otrabanda. Respondent determined: (1) The transactions
financing the purchase and sale of the IBJ CDs would not be
recognized for Federal income tax purposes for lack of economic
substance; (2) Otrabanda would not be recognized as a
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