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Estate of McKelvey v. Commissioner—Tax Planning Opportunity or a Trap for the Unwary?  


Author:  Mark Fichtenbaum.; Robert Gordon.


Source: Volume 34, Number 04, Summer 2017 , pp.25-30(6)




Journal of Taxation of Investments

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Abstract: 

In a highly unexpected result, the Tax Court in Estate of McKelvey v. Commissioner ruled that the extension in maturity of a profitable prepaid variable forward contract (PPVF) was not a taxable event. If this case could be relied upon, a hedger who is rolling over a profitable PPVF could avoid realizing gain on the PPVF by simply extending the maturity of the contract. Although tempting, we think this procedure could turn out to be disastrous if the case is overturned. Commenters have speculated that this decision could also delay the crystallization of profits on an option that one had sold, though this avenue may carry much less bite if the Tax Court is reversed.

Keywords: pre-paid variable forward contract (PPVF), modification PPVF, extension PPVF, gain recognition

Affiliations:  1: MF Consulting; 2: Twenty-First Securities.

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