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Abstract: 

In March 2009 the Tax Court issued an opinion in a case of first impression interpreting the requirement in Section 1058(b)(3) that a securities loan must “not reduce . . . the opportunity for gain of the transferor of the securities in the securities transferred.” The court concluded that, on the facts of the case, the transferor’s opportunity for gain had been reduced because during the loan period it was able to dispose of the transferred securities on only two early termination dates. This article describes the legal background to, and the facts of, the case and examines the reasoning in Judge Kroupa’s opinion. It also considers how some taxpayers may seek to interpret the opinion and highlights some points relevant to structuring securities loans after Samueli.

Keywords: Section 1058; STRIPs; Refco; prepaid forward transactions.

Affiliations:  1: Freshfields Bruckhaus Deringer US LLP.