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transfer of the options by the Arlene Nussforf
Trust to a partnership in return for a partnership
interest, the purchase of assets by the partner-
ship, and the distribution of those assets to the
Arlene Nussdorf Trust in complete liquidation of
it’s partnership interest, and the subsequent sale
of those assets to generate at a loss, all within
a period of less than 5 months, had no business
purpose other than tax avoidance, lacked economic
substance, and, in fact and substance, constitutes
an economic sham for federal income tax purposes.
As such, any loss incurred in connection with the
transactions in question are not deductible.
3. It is further determined that the loss deduction
claimed on your 1999 and 2000 federal income tax
return is disallowed because the Evergreen Trading
partnership with reference to which you determined
basis in the Euros sold is a sham and should not
be recognized for federal income tax purposes.
4. It is further determined that the deductions re-
ferred to under 1) claimed as a loss for tax years
1999 and 2000 are disallowed because you have
failed to establish the basis in the partnership
interests in Evergreen Trading held by the Arlene
Nussdorf Trust was greater than zero. You have
failed to establish the basis in the Euros sold or
disposed of was greater than zero ($0) for pur-
poses of determining the amount of the purported
loss under §165(b).
5. It is further determined that the deduction for
the loss claimed is disallowed to the extent that
the provisions of Chapter 1, Subchapter K of the
Internal Revenue Code were used to calculate basis
in the Property sold. Evergreen Trading was
formed or availed of in connection with a transac-
tion or transactions in taxable years 1999 and
2000 a principal purpose of which was to reduce
substantially the present value of your federal
tax liability in a manner that is inconsistent
with the intent of Subchapter K of the Internal
Revenue Code. The manner in which you and Ever-
green Trading accounted for the foreign currency
option transactions in question violated the in-
tent of Subchapter K. Accordingly, the parties’
accounting for the transactions should be
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Last modified: November 10, 2007