Michael V. Domulewicz and Mary Ann Domulewicz - Page 5




                                        - 5 -                                         
          of the gain was $5,831,772, and he implemented a plan promoted by           
          BDO Seidman and Jenkens & Gilchrist to create a $5,858,801 “loss”           
          to report as an offset to that gain.  As discussed in more detail           
          infra, the “loss” was reportedly generated by using a                       
          partnership, an S corporation, and a short sale of U.S. Treasury            
          notes to create a basis of approximately $29.3 million in                   
          publicly traded stock purchased at a relatively minimal cost.5              
          The transaction was similar to the transactions described in                
          Notice 2000-44, supra.                                                      
               Under the plan, DIP was formed on April 30, 1999, with                 
          petitioner as a 20-percent partner and two other individuals (at            
          least one of whom was a 40-percent shareholder of CTA) each with            
          a 40-percent interest.6  On July 7, 1999, petitioner entered into           
          a short sale of U.S. Treasury notes with a face value of                    
          $5,800,000.7  The U.S. Treasury notes matured on May 31, 2001,              


               5 As we recently explained in Kligfeld Holdings v.                     
          Commissioner, 128 T.C. 192, 195 n.6 (2007):                                 
               A short sale is the sale of borrowed securities,                       
               typically for cash.  The short sale is closed when the                 
               short seller buys and returns identical securities to                  
               the person from whom he borrowed them.  The amount and                 
               characterization of the gain or loss is determined and                 
               reported at the time the short sale is closed.  * * *                  
               6 Petitioner held his interest in DIP through his grantor              
          trust.  Because all items from DIP flowed directly to petitioner            
          through the grantor trust, we refer to petitioner’s interest in             
          DIP as if he owned it directly.                                             
               7 Petitioner entered into the sale through his single-member           
                                                             (continued...)           





Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  Next 

Last modified: November 10, 2007