-112-
encountered problems under which it had difficulty meeting its 2-
business-day deadline. The Devon system, for example, did not
automatically post to the general ledger, and thousands of
entries had to be entered manually each month. Because FNBC was
unable to enter all of these entries correctly within 2 business
days after the close of the year, it established the early
closing date.
FNBC’s use of its early closing date was approved by FNBC’s
chief accounting officer, and the stub period adjustments (those
adjustments for the period extending from the early closing date
until the yearend date) were discussed with FNBC’s outside
auditors. FNBC’s auditors concluded that FNBC’s financial
statements presented fairly, in all material respects, FNBC’s
financial position at yearend.
X. FNBC’s Administrative Costs Adjustment
A. Overview
FNBC made an internal forecast of future administrative
costs which it expected to incur in administering its existing
swap portfolio to maturity. For Federal income tax purposes,
FNBC considered the present value of these costs an adjustment to
the midmarket value of its swaps. FNBC ascertained its forecast
by (1) projecting future costs to manage the current portfolio of
swaps and interest rate guarantees; (2) reducing the projected
costs in each future year by the proportion of the current
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