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business purpose for investing in Salina during the latter period,
respondent contends that FPL’s entry into the partnership was
structured solely to provide the company with a perceived tax
benefit. Respondent argues in pertinent part:
In effect, there were two partnerships as a matter
of economic substance. The first partnership’s destiny
was to accomplish a specific tax purpose in its
predetermined life span of 48 hours. This partnership is
an economic sham. In contrast, the second partnership
had the legitimate role of implementing Mr. Silverstein’s
investment strategy commencing on January 1, 1993. The
economic substance of this partnership is not disputed.
Respondent contends that Goldman Sachs, fully aware that FPL
had incurred a large capital loss on the sale of CPG, arranged for
ABN to form Salina and orchestrated Salina’s $350 million short
position in Treasury bills so that, following FPL’s investment in
the partnership and the immediate liquidation of the partnership’s
investments, Salina would realize a substantial (paper) capital
gain. Continuing, respondent maintains that FPL would be able to
use its CPG capital loss carryover to offset its distributive share
of the Salina capital gain while simultaneously creating an
equivalent built-in loss in its Salina partnership interest-–a loss
that FPL would be able to realize at will through its control of
Salina. In this regard, respondent maintains that FPL improperly
used its investment in Salina to avoid the 5-year limitation on the
use of loss carryovers set forth in section 1212(a).
Respondent argues that FPL’s investment in Salina during the
initial investment period lacked economic substance because FPL had
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