John E. Keane, Dorothy M. Keane v. Commissioner of Internal Revenue

Appellants seek reversal of the Tax Court’s decision in consolidated proceedings sub. nom. Glass v. Commissioner, 87 T.C. 1087 (1986). In those cases, the Tax Court rejected appellants’ challenge to the Commissioner’s disallowance of losses claimed by appellants on their federal income tax returns for the years 1975 through 1980. The appellants allegedly incurred net losses from closing transactions in connection with “London option transactions” (commodity option and forward trading on the London Metal Exchange). The Tax Court held that the losses were not deductible under I.R.C. sections 165(a) and 165(c)(2), or section 108 of the Tax Reform Act of 1984, as amended retroactively by section 1808 of the Tax Reform Act of 1986, Pub.L. No. 99-514, 100 Stat. 2085 (“section 108”), because the London option transactions lacked “economic substance” and therefore were not the type of transaction to which the loss provisions of the Internal Revenue Code (“the Code”) applied.

Appellants argue, first, that the London option transactions did have economic substance aside from generating tax benefits for appellants, and that the Code’s loss provisions, in particular section 108, therefore…