115 T.C. No. 9
UNITED STATES TAX COURT
HOWARD V. MORE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4455-99. Filed August 15, 2000.
P is an individual underwriter for Lloyd’s of
London (Lloyd’s). As an underwriter, P is required to
demonstrate that he can cover potential losses on the
policies that he underwrites, a.k.a., show means. In
order to show means, P posted a letter of credit issued
by Bank Julius Baer (BJB) with Lloyd’s. The letter of
credit was secured by P’s preexisting stock portfolio.
The policies that P underwrote for the taxable
years 1992 and 1993 incurred losses. As a result of
the losses, BJB sold P’s stock at a substantial gain
during those years.
P reported the losses from his underwriting
activities as passive losses on his 1992 and 1993
Federal income tax returns. Additionally, P reported
the gain from the sale of stock by BJB as passive
income. P then offset the gain with the passive
losses. R contends that the gain recognized on the
sale of stock is portfolio income, and portfolio income
cannot be offset by P’s passive losses.
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