-194-
for nonmarketable securities. Congress also was told that, in
the case of instruments which did not have an active secondary
market, the implementation of a mark-to-market approach would be
a complex process. E.g., ABA Members Comment on Mark-to-Market
Accounting for Securities Dealer, dated September 10, 1992, in
92 Tax Notes Today 209-28 (Oct. 16, 1992). The compromise
Congress struck in enacting section 475 was (1) to require
mark-to-market accounting for dealer “securities,” regardless of
their marketability, and (2) to ask the Treasury Department to
prescribe regulations which would authorize valuation methods
which were more taxpayer favorable from a compliance point of
view. See H. Conf. Rept. 103-213, supra at 616, 1993-3 C.B. at
494. Given that the Treasury Department has yet to prescribe
these regulations, we believe it only natural to conclude that a
taxpayer such as FNBC must use under section 475 a method of
accounting that accurately marks its financial derivatives to
their market price as of the requisite valuation date.
Petitioner also argues that FNBC’s methodology in valuing
its swaps has been recognized by nearly everyone as the best
approach for valuing financial derivatives. Petitioner contends
that FNBC’s methodology was longstanding and systematic and that
each element was developed for important commercial and nontax
financial reasons. Petitioner contends that FNBC’s swaps were
valued at the same amounts in its general ledger, its financial
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