Bank One Corporation - Page 78

                                        -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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