-161-
Section 475(a) requires that a “dealer in securities” report
its securities at the end of the taxable year by using one of two
mark-to-market rules set forth in that section. See also sec.
1.475(c)-1(a)(2)(i) and (ii), Example (1), Income Tax Regs. (a
swaps dealer is a “dealer in securities” within the meaning of
section 475). The first rule requires that a dealer include in
its inventory the fair market value of each security held in its
inventory at the end of the taxable year. The second rule
requires that a dealer recognize gain or loss on each other
security held at the end of the taxable year as if the security
had been sold for its fair market value on the last business day
of that year.
By its terms, section 475 does not apply to FNBC’s 1990
through 1992 taxable years. FNBC, however, claimed that it was
reporting its swaps income for those years using a mark-to-market
method, and respondent has never disallowed FNBC’s use of such a
method. See generally sec. 1.471-5, Income Tax Regs. (permitted
dealers in securities to value their securities inventories at
market for taxable years before the effective date of section
475). We believe under the facts herein, including especially
that FNBC’s methodology for reporting its swaps income was
substantially the same in each of the years 1990 through 1993,
that our decision as to 1990 through 1992 flows correspondingly
from our analysis of the mark-to-market rules of section 475.
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