Bank One Corporation - Page 1

                                   120 T.C. No. 11                                    


                               UNITED STATES TAX COURT                                


          BANK ONE CORPORATION (SUCCESSOR IN INTEREST TO FIRST                        
               CHICAGO NBD CORPORATION, FORMERLY NBD BANCORP, INC.,                   
              SUCCESSOR IN INTEREST TO FIRST CHICAGO CORPORATION)                    
          AND AFFILIATED CORPORATIONS, Petitioner v.                                  
          COMMISSIONER OF INTERNAL REVENUE, Respondent                                


               Docket Nos. 5759-95, 5956-97.       Filed May 2, 2003.                 


                    F, a financial institution, enters into bilateral                 
               contracts which are a type of derivative financial                     
               product known as interest rate swaps.  Most of F’s                     
               swaps are of the plain vanilla type where one party                    
               (first party) agrees to pay to the other party (second                 
               party) amounts ascertained as of certain dates by                      
               applying a fixed rate of interest to a set notional                    
               amount.  The second party agrees to pay to the first                   
               party amounts ascertained as of the same dates by                      
               applying a floating rate of interest (e.g., LIBOR rate)                
               to the same notional amount.  For purpose of the                       
               mark-to-market rule of sec. 475(a)(2), I.R.C., which                   
               applies to taxable years ended after Dec. 30, 1993, F                  
               reported that the fair market value of its swaps as of                 
               Dec. 31, 1993, equaled their mid-market values; i.e.,                  
               the values derived through a net cashflow/present value                
               analysis that was based on the average of each swap’s                  





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