The court of appeals affirmed a Tax Court judgment. The court held that a securities loan with a fixed term of at least 250 days and possibly as long as 450 days failed to qualify for nonrecognition treatment where it was entered into not to provide the borrower with access to the lent securities but instead to avoid taxable income for the lender.
Acting on a recommendation from their investment advisor, billionaire Henry Samueli and his wife (Taxpayers) undertook a transaction jointly proposed by their accountant and tax consultant, Arthur Andersen LLP, and Twenty First Securities. The essence of the transaction was that the Taxpayers would purchase a security with a fixed rate of return determined by then-prevailing interest rates, paying a price derived from a variable interest rate.
