-214-
(rather than a hypothetical) financial instrument.70 In
determining our manner of valuation, we consider it important
that we are unable to find (nor does either party or the amici
suggest) that, except in rare cases, a party to a swap actually
sells its place in the swap to a third party. The record
indicates, and we find as a fact, that, except in those rare
cases, one party to a swap never sells only its position in the
swap but, instead, if it wants to get out of the swap, terminates
the swap in full primarily through a buyout.
VIII. Applicable Valuation Date
FNBC did not determine the value of its swaps as of the last
business day of its taxable years. Petitioner argues that the
early closing dates were reasonable and did not result in any
undervaluation of its swaps. Petitioner asserts that early
closing dates were common among banks and resulted, at most, in a
timing difference of 1 year. Petitioner relies upon Wal-Mart
Stores Inc. v. Commissioner, T.C. Memo. 1997-1, as support for
the early valuation dates used by FNBC.
We are unpersuaded by petitioner’s argument. Section 475
required that FNBC value its swaps as of the last business day of
its 1993 taxable year. Although section 475 by its terms also
70 In other words, were we to value FNBC’s swaps by assuming
that a hypothetical buyer replaces FNBC in the swap, we are no
longer valuing the actual swap but are now valuing a hypothetical
swap between the hypothetical buyer and the actual counterparty.
Page: Previous 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 NextLast modified: May 25, 2011