Bank One Corporation - Page 167

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               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 to                  






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