Free Motion for Discovery - District Court of Federal Claims - federal

Case 1:05-cv-00748-CCM
Ha~ 04 00 03:31p

Document 39-5

Filed 03/16/2007
917 322-2301

Page 1 of 1
p. i

Jef'f're~ Welles

J enkens & Gilchrist
A PROFESIOI CORPORATIO

- STRICTLY CONFIDENTIAL SUBJECT TO ATfORNEY-CLIENT PRIVILEGE AND NONDISCLOSURE AGREEMET BASIS ENHANCING DERIVATIVES STRUCTURE
EXECUTIVE SUMMARY
. I. Tupayer, thrugh a single mêmbe limited liabilty company treated as a disregarded
entity for ta pwps, enter iDto (writes) a short option postion on foreign currency.

Such transation is a nontaxable event until exerse. assignent. laps or tenation
business and/or investm reasn for ths invesent streg mUSl exis (e.g., a belief or view that the curenc pñce will move in the desire direction). The option spread may be bullsh (call spread) or besh (put spre).
2. Taxpayer foims a partersp (the "Parerip") with a thir par or with his wholly

notwthstaning the reipt of the cas preium for th option. Additionally, a long option position is puicased, using the shrt option prium an tapayer cah equity. A

owne S Corpration ("8 Corp."), in which the Taxpaye is a 99% parer.
3. Taxpayer contrbute the option sprea poslion to the Parersp. This contrution
should relt in Taxpayer's tax bas in its Parip intet being equal to the cost of
the long option contrbuted. The short option is, more likly than not, not tred as a

liabilty for tax purse thus aceving this relt.
4. At an appropnate time, me Parership clos the option potions based on maet
timing facors O£ the options expir and th Partrsip recogizes economic gain or

loss on the tranacon.

5. The Taxpaer contrbut his ste-up Parerhi intert to S Corp., resulting in the Parhip having only on parer an therfore liquiding distbutig all of its ass
by the Partship to the step-up outsde bas of

a third pa is the oth par in th Parersip, the Taxpayer may be reeeed from

10 th S Co. parer. In S& çae, th is a stepup in the ta bas of the asses held the S Coi. paer. Alteratively, jf

the partership in exchange for a disbution of ii equivalen fair value amout of such
assets, which tak on the Taxpayer's high outside bass in the Partbip.

6. The distbutee of the Parership asse (i.e., the S Coi. or the Taxpayer) sells them at their stepe-up bais.

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EXHIBIT D

vJtl(eç EXIBIT..
FOR

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KC 3962