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Salina/Goldman Sachs master repurchase agreement) under which
Salina borrowed $70,087,500 from Goldman Sachs and collateralized
the loan with a portion of the Treasury notes it had purchased.4
Salina treated the Goldman Sachs loan as a liability on its opening
balance sheet as of December 28, 1992.
On December 17, 1992 (consistent with Mr. Ackert’s earlier
request to Mr. Van Burg), Salina entered into a short sale of U.S.
Treasury bills with a face value of $350 million for a price of
$344,066,593.5 The Treasury bills were due to mature on June 17,
4 Repurchase agreements (repos) and reverse repurchase
agreements (reverse repos) are frequently used by dealers in
government securities, financial institutions, and others as
methods for temporary cash management, interest rate arbitrage,
or the borrowing of securities used in the course of a dealer’s
business. In a repo transaction, the first party (e.g., a
dealer) sells securities (generally U.S. Treasury and Federal
agency securities) to a second party (e.g., a customer) and
simultaneously agrees to repurchase a like amount of the same
securities at a stated price (generally greater than the original
sales price) on a fixed, future date. Repo transactions, from
the viewpoint of the seller (such as a dealer), provide financing
to acquire newly issued government securities or other portfolio
assets; from the viewpoint of the purchaser, a repo transaction
provides a means by which funds can be invested for a desired
period while holding as collateral a virtually risk-free asset in
the event the seller breaches its agreement to repurchase. See
Price v. Commissioner, 88 T.C. 860, 864 n.9 (1987)
5 One commentator has described a short sale as follows:
More completely, a short sale may be defined as
consisting of two transactions: (1) the taxpayer’s
sale of property (typically, securities) borrowed from
another person (typically, a broker), and (2) the
subsequent closing out of the short position by the
taxpayer’s delivery of securities to the person who
loaned the securities that were sold.
(continued...)
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