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Estate of McKelvey v. Commissioner: The Trap has Been Sprung  

Author:  Mark Fichtenbaum.; Robert Gordon.

Source: Volume 36, Number 02, Winter 2019 , pp.41-44(4)

Journal of Taxation of Investments

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The Second Circuit recently reversed the decision of the Tax Court in the case of Estate of McKelvey vs. Commissioner. The circuit court held that the extension of time in a variable prepaid forward contract was a closing of the first contract and the establishment of a new contract. The closing of the first contract resulted in a taxable gain on the contract and, unhappily for the taxpayer, the establishment of the second contract triggered the unrealized gain of the underlying shares to which the contract related.

Keywords: prepaid variable forward contract, VPPF – 1001 event, hedging low, basis shares, IRC Sec. 1259

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

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