T.C. Memo. 2000-352
UNITED STATES TAX COURT
SALINA PARTNERSHIP LP, FPL GROUP, INC., A PARTNER
OTHER THAN THE TAX MATTERS PARTNER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 25084-96. Filed November 14, 2000.
In 1991, FPL incurred a substantial capital loss on
the sale of a subsidiary. In December 1992, GS, an
investment bank, persuaded FPL to invest in a domestic
limited partnership, S, newly formed at GS’s request by
two affiliates of ABN, an international bank based in The
Netherlands. S, at GS’s suggestion, took a substantial
short position in U.S. Treasury bills. FPL purchased a
98-percent limited partnership interest in S to take
advantage of desired tax benefits and to enhance its
return on its short-term, fixed-income investments.
Immediately following FPL’s investment, S closed its
short position in U.S. Treasury bills.
Relying on a series of complex partnership basis
adjustment provisions, S concluded that it realized a
$344 million short-term capital gain, of which $337
million was allocated to FPL. FPL thereupon claimed a
capital loss carryover from 1991 to offset nearly all of
its distributive share of S’s capital gain.
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