Bank One Corporation - Page 113

                                        -193-                                         
          1992), was that, for GAAP purposes, dealers had to mark to market           
          their inventories of marketable securities, while for tax                   
          purposes they could (and did) use lower of cost or market or                
          other rules that were considerably more favorable in that they              
          tended to reduce taxable income.  Under the caption “Conform Book           
          and Tax Accounting for Securities Inventories/Reasons for                   
          Change,” that explanation noted, at 89:                                     
               Inventories of marketable securities are easily valued                 
               at year end, and in fact are currently valued by                       
               securities dealers in computing their income for                       
               financial statement purposes and in adjusting their                    
               inventory to an LCM [lower of cost or market] basis for                
               Federal income tax purposes.  The cost method and the                  
               LCM method tend to understate taxable income compared                  
               to the market method that securities dealers use to                    
               report their income to shareholders and creditors.  The                
               market method represents the best accounting practice                  
               in the trade or business of dealing in securities and                  
               is the method that most clearly reflects the income of                 
               a securities dealer.                                                   
               Later, as the proposal that became section 475 wound its way           
          through the legislative process,62 its scope was expanded to                
          include not only marketable securities but also instruments such            
          as swaps and other financial derivatives for which no active                
          secondary market existed.  During this process, Congress knew               
          that GAAP did not explicitly require mark-to-market accounting              


          62 The first legislative precursor of sec. 475 was sec. 372                 
          of the Economic Growth Act of 1992 (H.R. 4150).  H. Rept.                   
          102-4150 (1991).  H.R. 4150 was not enacted.  However, sec. 3001            
          of the Revenue Bill of 1992, H.R. 11, 102d Cong. (1992),                    
          contained similar language.  H.R. 11 passed both houses of                  
          Congress but was vetoed by the President.                                   




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