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section 1233 and section 1.1233-(1)(a), Income Tax Regs., which
require a short sale to be treated as an “open transaction” for
income tax purposes. Because a short sale of securities is treated
as an open transaction for income tax purposes, and income
recognition is deferred until the transaction is closed with the
replacement of the borrowed shares pursuant to section 1233,11
petitioner reasons that section 705 requires that any adjustments
to the partners’ outside bases in their partnership interests be
deferred until the short sale is closed. In connection with this
argument, petitioner contends that the Commissioner’s position in
Rev. Rul. 95-26, supra, conflicts with Rev. Rul. 73-301, 1973-2
C.B. 216, and the Court’s holding in Helmer v. Commissioner, T.C.
Memo. 1975-160.
We are not convinced that the treatment of a short sale as an
open transaction for income tax purposes under section 1233 is
controlling with respect to the proper treatment of the transaction
for purposes of the partnership basis adjustment provisions
contained in subchapter K. Petitioner’s argument overlooks the
disparate policies that sections 1233 and 752 are intended to
promote. Section 1233 affords open transaction treatment to a
short sale, i.e., defers recognition of gain or loss until the
11 A short sale of securities is treated as an open
transaction for income tax purposes because the taxpayer’s
ultimate gain or loss on the transaction cannot be determined
until the taxpayer purchases securities to replace those that
were borrowed (and sold) in the first leg of the transaction.
See sec. 1.1233-1(a), Income Tax Regs.
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