Free Affidavit - District Court of Federal Claims - federal

Case 1:05-cv-00231-EJD

Document 97-17

Filed 07/17/2007

Page 1 of 4

Internal Revenue Servia Small BusinrrdSeIf-Employed Division 4995 Lacmss Road. Suite 1400-A N. Charleston. SC 29406
ATTN: Ms. Debra Simmons

Intmal Revenue Agent

SSAN Form 1040 -D

re Jerry & Anita Zucker 4838 Jenldns Ave North Cha 9405 1,1999

JBJZ Partners 16 Buckhgharn Dr. Charleston, SC 29407 FEIN 57-1088089 Form 1065 December 27,1999

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16 Buekingham Dr. Charleston, SC 29407 FEIN 57-1088087 O 11205 December 31,1999 ~

JBJZ Investors, Inc.

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Dear Ms. Simmons:

In accordance w t Announcement 2002-2. we arc electing to d i l o s e a uansaccion that ih Dtcunber 27.1999 Form 1065 of JBR Partners (the "Pannership"), was reported on the December 31. 1999 Form 1120-S of JBIZ Investors. Inc. (the "S Corporation"), as well as on our joinlly filed 1999 Form 1040. We understand ihat as a m u l t of our disclosure pursuant lo Announcement 2002-2. chc [RS will waive any accuracy-related penalties under Section 6662 that might otherwise have applied.

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GOVERNMENT EXHIBIT

Case 1:05-cv-00231-EJD

Document 97-17

Filed 07/17/2007

Page 2 of 4

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Dcscri~tlon material facts of the iteq of On November 23.1999. lhmugh a Dclawm lidled liability company wholly owned by me (Jerry Zuckcr),JZ Buckingham Investments LLC, I entered into cumin over-thecounter non-publicly rreded European style option positions on the Eum and the Japnnese yen (the "options") with Durtsche Bank AO New York Branch. an unrehed subsraotive counterparty that regularly conducts such vansactions in the ordinary m u s e of its daily business. SpecificaUy, I bought digiral options on (1) the Eur0NJ.S. Dollar exchange rate at a strike price of U.S. S1.0123 per 1.0 Eum with an expiration date of Durmbcr 2 2 1999. and a settlement dare of December 27.1999, and (2) the Japancse YenN.S. Dollar uchangc rare n a slrike price of 106.19 Yen per U.S. S1.00 wirh an expirsrion date of December 22. 1999, and a settlement dale of December 27.1999 (the "Purchkced Options"). Additionally. I sold (1) a digital option on thc EumN.S. Dollar exchange rate at a strike price of U.S. S1.0121 per 1.0 Euro and received a premium of S19,000,000, with an expiration dale of Decunbcr 22. 1999, a serrlemcnt date of December 2l. 1999. and a payoff amount of S37.500.000 and (2) a digital option on the Japanese Yen/ U.S. Dollar exchange mtc at a mike price of 105.21 Japanese Yen per U.S. $1.00, with an expiretion dare of December 22.1999, and a wttlement date of December 27,1999 (the "Sold Options").

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The Purchased Options and the Sold Options wue acquired under separate conwcls with a spread between the snike price of the Punhased Options and the Sold Options. Each
Purchased Option and Sold Option expired on the expintion date independently of any other conuact. The Purchased and Sold Options were out-of-the-money when acquired by me. On or nboul November 24,1999.1 confributcd Uu P~~rchascd Sold Options, together and with cash. to JBJZ Panners, a South Carolina general panncnhip (the "Pannenbip'>, as a contribution to its capital. The Purchased and Sold Options were each out-of-the-money when acquired by ~e Partnership. On December 22, 1999. rho Panncrship's Option pasitions turninaced in accordance with lhci tccms. Subscqucnt thereto. the Parmcrship purchased Mhcr financial a s s In addition. on Decembtr 22,1999.1 conuibuled 4.500 se. shares of C i m Systems. Inc. stock. held in ucess ofone year. to the parmership as a contribution t capital. o On December 27.1999.1 contributed my intcmt in the Parulership to J J Investors, BZ Inc. C'Corp."), a Delaware S corporation in which I am a 904b hcholdcr, as a conmiburion to its capital. Simultaneously, the other partner of JBJZ Parmetship conmbuled such partner's interest in the Panomhip to JBJZ Corp. Such conmiutors in rhc aggregate owned 100% OF the issued and ouuranding shares of JBIZ Cop.

On December 27,1999, thc Patnerdtip wao dissolved and liquidad, wirh all of irs assets disvibured to JBJZ Cop. Subsequently, JBJZ C q , sold all of te assea which it h
received upon the liquidation of the PartnersUp to unrelated third parry purchasers.

Case 1:05-cv-00231-EJD

Document 97-17

Filed 07/17/2007

Page 3 of 4

Statement descrlblne tax tmtment'aod rnxable "ears rffected The Options were separate iaurumenrsfor FFedual income tax purposes. My basis in each Purchased Option w;ls equill to the premium paid for the Purchased Option undw UIC Section 1012. Upon mnuibution of h e Purchased and Sold Options to the Parmenhip. my basis in my interest in the Panncrship was qua1 to my basis in h e Purchesed Options. My conuibution of my inures1 in the Pannenhip to the Corporation qualified as an exchange described in IRC Scc. 351(s) on which I recognized no galn w loss. My basis in my JBJZ Corp. stock was qua1 to the amount of my basis in the Pannership. JBJZ Corp.'s basis in my intern in the Panncrship equaled my tax basis therein. The a s s disuibund to JBJZ Corp. in liquidation of ifs interest in the JBJZ Parmenhip was a distribution of property and the Corporation did mx recognize gain or loss under IRC Sec. 731 upan rereipr of its share of the Parmcrship's assets. Accordingly, JBJZ Corp.'~ basis in the assets received was equal to JBJZ Corp.'s adjusted basis in its intcrest in the JBJZ Parrncrship. JBJZ Corp. subsequently sold the assets for fair marts value in a transaction with a third party. The sale of such assets resulted in a loss in the amount of (S49.644.Ll4) reflected on Line 22 of JBJZ Corp.'s Form 1120-S. Schedule K-I, which was repncd through the K-1 to our 1999 Form 1040. The loss was claimed on our return m the extent of my baris in rhc Corpoiation. The [ax year affected by this hansaction is calendar ycar 1999. .ad we wtsb to reiterate that the transaction was properly reported on the prtnership's return, the S Corpornclan's return and our individual Form 1030. Parties h o ommoted. solicited. or recommended our oartidoation and oarties d o advised Ule lrromoter with resnecl to the transaction: Emst & Young U P Aaention: Roben B. Coplan I225 Connecticut Avenue. E W Wsshingtoh DC 20036 Jenkins & G i s h U P Anention: Paul Daugerdas, Eq. 225 W Washington Sucet Suite 2600 Chicago. I 60606-3418 L Sidley Austin Brown & Wood Atcention: R J.Ruble. Esq. 875 Third Avenue New Yotk. NY 10022
We agree to provide, if requested. copies of all of the following:

Case 1:05-cv-00231-EJD

Document 97-17

Filed 07/17/2007

Page 4 of 4

A.

All transactional dncumenu. indoding agreements, cornmess, iusmuuenu, schedules, and any information received from the pomotas, solicilors or recommending parties and all mattrial mind from those other parties'

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advisor(s);

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All internal documem or mmomda used by us in ourdccision-making process; and

All opinions and memoranda that provide a legal analysis of thc msactions, whether prepared personally o by a tax professional on our bchaIf. r

Under penaltics of perjury. we agne that we have examined this disclosure and to the bcrt of ow lolowledee and belief. the informuion muvided as mof rha disclosure " contains dl relevant facts and is me. comnand complete.
Please send confirmation of receipt and ncceptance t the tenns agraed npon in o Announcement 2002-2 lo Jerry Zucker, 16 Buckingham Dr.. Charleston. SC 29407.

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Internal Revenue Service Office afTax Shelter Analysis MPFK:OTSA