-242- Respondent asserts that for plain vanilla swaps with AA dealers for counterparties, midmarket value is precisely equal to fair market value. Respondent asserts that for plain vanilla swaps between counterparties with different credit ratings, some may have a fair market value less than midmarket whereas others will have a fair market value greater than midmarket values. Respondent contends that dealers that value their swaps on a portfolio basis therefore have an accurate valuation by using midmarket values without adjustment. We decline respondent’s invitation to value FNBC’s swaps by reference to the quoted regulations. As petitioner correctly notes, all of the experts agree that the fair market value of a swap must take into account credit risk and administrative costs adjustments. Nor do we agree with respondent that it is appropriate to value FNBC’s swaps collectively rather than individually. As noted explicitly by the members of the House Committee on Ways and Means: “For purposes of the provision, fair market value generally is determined by valuing each security on an individual security basis.” H. Rept. 103-111, supra at 665, 1993-3 C.B. at 241; see also sec. 20.2031-1(b), Estate Tax Regs. XII. Conclusion We conclude that FNBC’s mark-to-market method of tax accounting for its swaps income failed for nine reasons toPage: Previous 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 Next
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