Howard V. More - Page 5




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            losses, BJB sold petitioner’s pledged stock.2  From these sales                            
            of the pledged stock, he realized substantial gains during 1992                            
            and 1993.                                                                                  
            Lloyd’s Closing Agreement and Filing Procedure                                             
                  In 1990, in an effort to provide uniform tax treatment to                            
            United States and non-United States underwriters of Lloyd’s, the                           
            underwriters, Lloyd’s, and the IRS entered into a closing                                  
            agreement.  The closing agreement bound all United States Names,                           
            including petitioner, to report all underwriting profits and                               
            losses and all investment income from Lloyd’s activities as                                
            income or loss from a passive activity.  Thus, pursuant to the                             
            closing agreement, petitioner treated the losses incurred by the                           
            syndicates in which he participated as passive losses.  The                                
            closing agreement did not address the tax treatment of gains or                            
            losses realized on the disposition of assets held as security for                          
            a letter of credit provided for the underwriting activities.                               
                                             Discussion                                                
                  On his 1992 and 1993 tax returns, petitioner reported the                            
            gain from the sale of the pledged stock as passive income and                              
            offset the gain by the passive losses from his underwriting                                
            activities.  Respondent disagrees with this treatment and argues                           
            that the gain is portfolio income which cannot be offset by                                


                  2  We assume that Lloyd’s drew upon petitioner’s letter of                           
            credit thereby precipitating the sale of petitioner’s pledged                              
            stock by BJB.                                                                              




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