-189-
Commissioner should defer to the taxpayer’s normal financial
accounting valuation, which in the case of a swaps dealer was
generally the method that was recommended by the G-30 report.
This implication that using financial accounting methods would
“alleviate unnecessary compliance burdens” is buttressed by
another part of the legislative history of section 475. This
other part, which relates to the identification of certain
securities as hedges (and not the fair market valuation of
securities), indicates that the use of financial accounting
methods would be an adequate and efficient method for applying
mark-to-market rules. The other part states:
It is anticipated that the identification rules
with respect to hedges will be applied in such a manner
as to minimize the imposition of additional accounting
burdens on dealers in securities. For example, it is
understood that certain dealers in securities use
accounting systems which treat certain transactions
entered into between separate business units as if such
transactions were entered into with unrelated third
parties. It is anticipated that for the purposes of
the mark-to-market rules, such an accounting system
generally will provide an adequate identification of
hedges with third parties. [H. Rept. 103-111, supra at
664, 1993-3 C.B. at 240.]
B. Standard of the Mark-to-Market Method Is Not
Reasonableness
Petitioner argues that FNBC was allowed to use its specific
mark-to-market method for purposes of section 475 because,
petitioner asserts, FNBC’s method was “reasonable”. We disagree
with petitioner that the reasonableness of a particular method of
accounting is the linchpin of an acceptable method under section
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