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Read as a whole, the regulations impart an intention to establish
a method of accounting that reasonably will match the gains and
losses reported on a CINS transaction.
The partnerships sold the PPNs and CDs for cash and LIBOR
notes and reported their gains on the sales by ratably allocating
their bases pursuant to section 15A.453-1(c)(3)(i), Temporary
Income Tax Regs., supra. Based on their partners' respective
capital accounts at the time of the sales, Saba and Otrabanda
allocated 90 percent of the gains realized on the transactions to
Sodbury and Bartolo, respectively. However, because Sodbury and
Bartolo were not subject to U.S. income tax, their distributive
shares of the gains realized on the transactions escaped U.S.
taxation. On the other hand, Brunswick's more modest 10 percent
distributive share of the gains on the sales of the PPNs and CDs
were dwarfed by the substantial capital losses that Brunswick
later realized following the distribution and sale of the LIBOR
notes.
Petitioner contends that the disputed transactions satisfy
the requirements of the contingent installment sale provisions
and the ratable basis recovery rules. In particular, the
partnerships sold PPNs and CDs--assets that are not traded on an
established securities market. See sec. 453(k)(2)(A). In
exchange, the partnerships received cash and LIBOR notes.
Petitioner contends that the LIBOR notes represent a series of
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