It’s been a long long trail a’windin’, but we’ve come to the end of the road in Estate of Andrew J. McKelvey, Deceased, Bradford G. Peters, Executor, 161 T. C. 9, filed 11/2/23. Almost three (count ’em, three) years to the day since 2 Cir sent the founder of the fleshpeddling website Monster.com back to Tax Court to reckon up the tax bill for the busted variable prepaid forward contracts (VPFCs) wherewith the late Andrew sought to get a DOD stepped-up basis for his estate. For the backstory, see my blogpost “Monster Forward Shot Blocked,” 10/31/19.

Judge Alina I. (“AIM”) Marshall appears in relief of retired Judge Ruwe. First, the old VPFCs are closed, not open. Thus spake 2 Cir. Thus one can determine both the character of the capital gain (short or long), and the amount thereof. Stock prices fluctuate, so Brad’s trusty attorneys’ arguments about real estate option contracts are wide of the mark; real estate doesn’t fluctuate much (Taishoff says except Dixieland Boondocks). Section 1234 and its appendages come into play.

“The nature of the underlying property controls. Even when it is well established that the taxpayer’s position with respect to a derivative is not property, the Code dictates that any gain or loss is treated as if derived from property. We will continue to evenly apply that principle to the VPFCs in question. Consequently, the applicability of section 1001(a) is not affected by the nonproperty nature of decedent’s position with respect to the VPFCs, but rather by the fact that the underlying shares are property. The underlying Monster shares are property in the hands of decedent, and therefore section 1001(a) applies to gain from the sale or other disposition of derivatives relating to those shares. Where section 1001 restricts gain calculations, either to property or otherwise, we will look to the nature of the underlying shares as a basis for the section’s applicability, rather than to the nature of the taxpayer’s position.” 161 T. C. 9, at p. 21.

And Judge AIM Marshall lays it all out on page 22.

Short-term gain of $71 million in 2008. The interest will be more than that.