Milton I. Schwartz Nina Schwartz v. United States

On their 1976 tax return Milton I. Schwartz and Nina Schwartz reported an ordinary loss of $208,675. This loss was generated by an options straddle. The Sehwartzes reported the other end of the straddle, a capital gain of $180,840, on their 1978 tax return.

The tax court disallowed the 1976 deduction in 1983, on the ground the straddle was a sham transaction. The Sehwartzes paid the resulting deficiency in their 1976 tax, and claimed a refund of the capital gains tax they paid on the gain they reported in 1978.

When the Internal Revenue Service (IRS) denied the Sehwartzes’ claim, they sued for a refund in the district court. The district court granted summary judgment in favor of the government, on the ground that the statute of limitations barred the Sehwartzes’ refund action. This appeal followed.

We have jurisdiction under 28 U.S.C. § 1291 , and we affirm.

I

FACTS AND PROCEEDINGS

In 1976, the Sehwartzes entered into an options straddle operated by broker/dealers of the London Metals Exchange (LME). The straddle matches a series of short and long sales of silver and is designed to generate a large ordinary loss in the first year. Because the sales are matched,…