-185-
inventory methods. For example, in Rev. Rul. 74-223, supra, the
Commissioner addressed futures contracts that commodities dealers
entered into as hedges. The Commissioner relied on the nontax
purposes for which the taxpayers’ mark-to-market method of
accounting was employed and concluded that the method clearly
reflected income.
Before the enactment of section 475, swaps dealers all
confronted the short-dated-hedges/long-dated-swaps timing
distortions discussed above. In response, many dealers
voluntarily adopted comprehensive mark-to-market tax accounting,
and swaps dealers in some cases lobbied Congress to adopt rules
confirming mark-to-market as a valid tax accounting method for
swaps dealers. E.g., Letter to Internal Revenue Service from
Saul Rosen, Salomon Brothers Inc., dated December 6, 1991, in
91 Tax Notes Today 255-37 (Dec. 17, 1991); Letter to Internal
Revenue Service from Cynthia Beerbower, on Behalf of Nine
Interest Rate Cap Dealers, dated March 4, 1988, in 88 Tax Notes
Today 69-29 (Mar. 28, 1988). See generally Kleinbard & Evans,
“The Role of Mark-to-Market Accounting in a Realization-Based Tax
System”, 75 Taxes 788, 798-799 (1997). The technical reason for
any concern was that, while swaps are directly analogous to
traditional securities inventories, swaps arguably are not
directly inventoriable, because once entered into, they are not
literally held for resale to other customers.
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