Holding: The Tax Court held that the execution of the VPFC extensions did not constitute sales or exchanges of property under Sec.
The IRS argued that a taxpayer's extensions of variable prepaid forward contracts (VPFCs) constituted a sale or exchange of property and, thus, the taxpayer had to recognize gain in the year the extensions were executed.
No primeiro caso com tres variaveis, o VPFC, referente ao valor presente da simulacao do caso base no periodo em que se analisa a opcao foi de US$ 0,47 bilhao e o valor presente da perpetuidade apos os cinco anos e igual a US$ 1,89 bilhao, totalizando um valor presente de US$ 2,36 bilhoes que, descontados do investimento de US$ 550 milhoes para planta de fertilizantes que opera para produzir e vender amonia, representam um valor presente liquido do caso base de US$ 1,81 bilhao.
Com isso obtem-se um valor presente liquido da simulacao do caso base de US$ 1,18 bilhao, resultado da soma de um VPFC de US$ 0,46 bilhao referente ao fluxo dos primeiros cinco anos mais o valor presente da perpetuidade de US$ 1,27 bilhao menos o investimento inicial de US$ 550 milhoes.
However, in many VPFC transactions, the facts of Rev.
Further, taxpayers should be cautious because the IRS has indicated in an issue paper that VPFC transactions are an emerging issue and may be subject to accuracy-related or reportable transaction penalties under Secs.
Return to the prior example and suppose the risk-free rate is 5% and the taxpayer receives a net amount of $0 for entering the VPFC. We might be ready to find an implied volatility of 54.29% and a delta of -78.65%, as they correspond with a Black-Scholes value of zero.
(171) The variable prepaid forward contracts (VPFC) has the same cash flows as the modified equity collar combined with a loan equal to the value of the shares at the time the VPFC is executed.
In general, a VPFC is a privately negotiated agreement between an individual taxpayer who owns shares of appreciated stock and a counterparty (i.e., a commercial or investment bank).
Given that the number of shares ultimately required to be delivered on the maturity of the VPFC will depend upon the value of the underlying stock at that time, it is generally thought a VPFC does not constitute a "forward contract" under [section] 1259(d)(1) (3) (i.e., a contract to deliver a substantially fixed amount of property for a substantially fixed price), and thus, does not give rise to a constructive sale of the underlying shares of stock under [section] 1259.
Generally, in a VPFC, a shareholder pledges highly appreciated stock to an investment bank (counterparty) in return for an options collar.
Then, in TAM 200604033, followed by Chief Counsel legal advice memorandum AM-2007-004 (January 2007) and now the coordinated issue paper, the Service said that a VPFC that includes an SLA or other similar arrangement that allows the counterparty to use the pledged shares results in a current tax able sale of the underlying shares.