-180-
was acceptable for FNBC also to have used its mark-to-market
method for purposes of section 475 as long as the method actually
arrived at the fair market value of FNBC’s swaps. Stated
differently, we believe that FNBC’s mark-to-market method will
clearly reflect its swaps income for Federal income tax purposes
if the method was in fact a mark-to-market method.
1. Acceptable in Theory
Mark-to-market accounting has for decades been considered by
academia and other commentators to be the most theoretically
desirable of all the various systems of taxing income in that
mark-to-market accounting consistently measures and levies tax on
a taxpayer’s economic (or Haig-Simons) income.60 See Haig, The
Concept of Income--Economic and Legal Aspects, The Federal Income
Tax (1921), in Readings in the Economics of Taxation 68-69
59(...continued)
believe that there may be more than one specific method of
accounting that may properly be considered a mark-to-market
method under sec. 475(a)(2).
60 As the Court noted in Collins v. Commissioner, T.C. Memo.
1992-478, affd. 3 F.3d 625 (2d Cir. 1993):
The Haig-Simons definition of income states that income
during a taxable period is properly defined as the sum
of (1) the market value of rights exercised in
consumption during the period, and (2) the increase in
the value of the store of property rights, or wealth,
between the beginning and the end of the period. Haig,
The Concept of Income--Economic and Legal Aspects, in
Readings in the Economics of Taxation 54 (Musgrave &
Shoup eds. 1959); Simons, Personal Income Taxation 50
(1938). * * *
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