- 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...)
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