Wechsler & Co., Inc. - Page 25

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               Petitioner did not pay any interest to Mr. Wechsler with               
          respect to either the above cash loans or the securities loan.              
          Petitioner’s 1992 Through 1999 Tax Returns and FOCUS Reports                
               For its 1992 through 1999 fiscal years, petitioner prepared            
          its Federal income tax returns using an accrual method of                   
          accounting.  Under that method, securities petitioner held in               
          investment accounts were reflected on the tax return balance                
          sheet at cost and not at fair market value.  Up until its 1994              
          return, petitioner for tax purposes generally carried its                   
          securities positions in trading accounts at the lower of cost or            
          market.  In 1993, the mark-to-market rules of section 475 were              
          added to the Internal Revenue Code by the Omnibus Budget                    
          Reconciliation Act of 1993, Pub. L. 103-66, sec. 13223, 107 Stat.           
          481, effective for taxable years ending on or after December 30,            
          1993.  Beginning with its 1994 return, petitioner marked to                 
          market all securities held in trading accounts daily, so that               
          immediate realization and recognition of gain or loss resulted.             
               Petitioner’s annual FOCUS reports for its 1992 through 1999            
          fiscal years incorporate petitioner’s audited financial                     
          statements, which were required to be prepared in accordance with           
          generally accepted accounting principles (GAAP).  Those audited             
          financial statements were prepared in accordance with GAAP except           
          to the extent the balance sheets failed to list as a liability              
          petitioner’s deferred taxes computed in accordance with GAAP.               






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