Estate of McKelvey v. Commissioner: The Trap Has Been Sprung

摘要

The Second Circuit recently reversed the decision of the Tax Court in the case of Estate of McKelvey v. Commissioner. The circuit court held that the extension of time in a variable prepaid forward contract was a closing of the first contract and the establishment of a new contract. The closing of the first contract resulted in a taxable gain on the contract and, unhappily for the taxpayer, the establishment of the second contract triggered the unrealized gain of the underlying shares to which the contract related.