DocketNumber: Docket No. 30957-09
Citation Numbers: 102 T.C.M. 597, 2011 Tax Ct. Memo LEXIS 294, 2011 T.C. Memo. 292
Judges: WELLS
Filed Date: 12/22/2011
Status: Non-Precedential
Modified Date: 11/20/2020
WELLS,
The facts set forth below are based upon examination of the parties' pleadings, moving papers, responses, and attachments.
Petitioners are husband and wife who resided in Tennessee at the time of filing the petition. At all relevant times, petitioners each owned 50 percent of Cyber Advice, LLC (Cyber Advice), a Georgia limited liability company. Petitioner Terry L. Wright (Mr. Wright) was president of Cyber Advice and its member manager. During 2002 Cyber Advice was taxable as a partnership for Federal income tax purposes.
During 2002 Cyber Advice*295 authorized Multi National Strategies, LLC (Multi National), to engage in various over-the-counter foreign currency option transactions. Mr. Wright and Multi National agreed that Beckenham Trading Company, Inc. (Beckenham), would serve as the counterparty to the foreign currency option transactions. During December 2002 Cyber Advice purchased from Beckenham nine over-the-counter foreign currency options, and it sold to Beckenham nine offsetting over-the-counter foreign currency options. In his motion for partial summary judgment, respondent contests only Cyber Advice's reporting of one of those transactions, so we will describe only that transaction.
On December 20, 2002, Cyber Advice purchased a euro put option for a premium of $36,177,750 (the euro put option). The euro put option gave Cyber Advice the right to sell to Beckenham on the expiration date of the option €1,237,477,902 for $1,260,000,000. On December 23, 2002, Beckenham, Cyber Advice, and the Foundation for Educated America, Inc. (FEA), entered into an agreement whereby they assigned the euro put option to FEA. At the time the euro put option was assigned to FEA, it was valued at $33,018,574. Relying upon
Petitioners timely filed their Federal income tax return for 2002. Respondent subsequently issued a notice of deficiency, and petitioners timely filed their petition with this Court.
A "regulated futures contract" means a contract with respect to which the amount required to be deposited and the amount which may be withdrawn depend on a system of marking to market and which is traded on or subject to the rules of a qualified board or exchange.
(i) which requires delivery of, or the settlement of which depends on the value of, a foreign currency which is a currency in which positions are also traded through regulated future contracts, (ii) which is traded in the interbank market, and (iii) which is entered into at *299 arm's length at a price determined by reference to the price in the interbank market.
Because the euro put option Cyber Advice assigned to FEA was denominated in a major currency, it is a major foreign currency option. A major foreign currency is a "currency in which positions are * * * traded through regulated futures contracts".
Petitioners contend that a major foreign currency option is a "foreign currency contract" subject to the mark-to-market rules of
Respondent's motion asks us to decide whether a major foreign currency option is a "foreign currency contract" qualifying for
In A foreign currency option is a unilateral contract that does not require delivery or settlement unless and until the option is exercised by the holder. An obligation to settle may never arise if the holder does not exercise its rights under the option. It is clear that, as originally enacted in 1982, * * * [the statute] applied only to forward contracts. The statute referred to a contract which required delivery of the foreign currency, not to a contract in which delivery was left to the discretion of the holder. to allow a cash-settled forward contract to come within the term "foreign currency contract". Foreign *301 currency contracts can be physically settled or cash-settled, but they still must require, by their terms at inception, settlement at expiration. * * *
Petitioners do not attempt to factually distinguish the instant case from
In reaching these holdings, we have considered all the parties' arguments, and, to the extent not addressed herein, we conclude that they are moot, irrelevant, or without merit.
To reflect the foregoing,
1. Unless otherwise indicated, section references are to the Internal Revenue Code of 1986, as amended, and Rule references are to the Tax Court Rules of Practice and Procedure.↩
Leonard Greene and Joyce Greene v. United States , 79 F.3d 1348 ( 1996 )
Sundstrand Corporation v. Commissioner of Internal Revenue , 17 F.3d 965 ( 1994 )
Summitt v. Comm'r , 134 T.C. 248 ( 2010 )
Sundstrand Corp. v. Commissioner , 98 T.C. 518 ( 1992 )