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She concluded that FNBC’s mark-to-market method was not actually
a mark-to-market method.
We agree with O’Brien’s conclusion that FNBC’s
mark-to-market method was not in fact a mark-to-market method.
We conclude that FNBC’s mark-to-market method was inconsistent
with the fair market value requirement of section 475.
B. Midmarket Values
Section 475(a)(2) generally mandates that FNBC value each
swap that it “held at the close of any taxable year * * * as if
such security [swap] were sold for its fair market value on the
last business day of such taxable year”. FNBC’s midmarket method
failed this requirement. FNBC’s midmarket method did not
ascertain midmarket values for all of the swaps which FNBC held
at the end of each of its taxable years, as if those swaps had
been sold at their fair market value as of the last business day
of the appropriate years. The midmarket values which FNBC
computed as of its early closing dates were not last business day
values. Such an early valuation date is inconsistent with
section 475, especially when one considers that the values of at
least some of FNBC’s swaps changed significantly from the early
closing date to the date of the last business day. As Sziklay
noted, and we agree, the valuation date required by section 475
is December 31 for calendar year taxpayers such as FNBC, and an
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