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their participation in tax shelter programs known as the
"Arbitrage Carry" gold trading program promoted by Futures
Trading, Inc. (the FTI program) and the Treasury bill option and
stock forward transactions promoted by Merit Securities, Inc.
(the Merit Securities program). In 1984 and 1985, petitioners
reported taxable gains from offsetting straddle transactions
carried out in connection with the Merit Securities program.
Respondent determined deficiencies in and additions to
petitioners' Federal income tax liabilities for the taxable years
1978 through 1982 based upon the disallowance of losses that
petitioners claimed with respect to the FTI and Merit Securities
programs. Respondent also determined that petitioners are liable
for interest computed at the increased rate prescribed in section
6621(c) (section 6621(c) interest) for each of the years in
issue. Respondent also determined that petitioners are liable
for additions to tax under section 6653(a)(2) for 1981 and 1982.
Petitioners filed a timely petition contesting respondent's
determinations. They subsequently agreed that adjustments
related to their participation in the Merit Securities program
would be redetermined in the same manner as certain test cases.
In the test cases, reported as Leema Enterprises, Inc. v.
Commissioner, T.C. Memo. 1999-18, the Court disallowed all losses
related to the Merit Securities program on the alternative
grounds that the program lacked economic substance and Merit
Securities program participants failed to meet the statutory
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Last modified: May 25, 2011