                           T.C. Memo. 2011-64



                         UNITED STATES TAX COURT



        EDWARD M. KURATA AND LORRAINE A. KURATA, Petitioners v.
              COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 5217-09.                 Filed March 16, 2011.


        William E. Taggart, Jr., and Barbara N. Doherty, for

petitioners.

        Daniel J. Parent, for respondent.



                           MEMORANDUM OPINION


        HAINES, Judge:   This case is before the Court on

respondent’s motion for summary judgment filed pursuant to Rule

121.1

        1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended, and all Rule
                                                   (continued...)
                                - 2 -

     We must decide whether transactions in which petitioners

transferred shares of Foundry Network, Inc. (FDRY), to Derivium

Capital, L.L.C. (Derivium) in exchange for a total of $7,404,720

were sales or loans for Federal tax purposes in 2000.

                              Background

     At the time of the filing of the petition, petitioners

resided in California.

     In 2000 petitioners were introduced to Derivium and its 90-

percent-stock-loan program.    We recently described the details of

this program in Calloway v. Commissioner, 135 T.C. 26 (2010), and

Shao v. Commissioner, T.C. Memo. 2010-189.    As we discussed in

Calloway and Shao, under the 90-percent-stock-loan program

Derivium would purport to lend 90 percent of the value of

securities pledged to Derivium as collateral.   Petitioners do not

dispute the facts relevant to their participation in Derivium’s

90-percent-stock-loan program and concede that their transactions

are “quite similar” to the transactions discussed in Calloway.

     Petitioners transferred 65,013 and 25,000 shares of FDRY to

Derivium on April 27 and June 13, 2000, respectively.   In each of

the transactions at issue, Derivium sold the FDRY stock received

from petitioners within several days of receipt.   On May 3, 2000,

Derivium transferred $4,638,654 (90 percent of the value of



     1
      (...continued)
references are to the Tax Court Rules of Practice and Procedure.
                              - 3 -

62,313 shares of FDRY) to petitioners, and on June 21, 2000,

Derivium transferred an additional $2,766,066 to petitioners (90

percent of the value of 27,700 shares of FDRY).2   Each transfer

was made pursuant to a “Master Agreement to Provide Financing and

Custodial Services” (the master agreements).   Each master

agreement provides:

     This Agreement is made for the purpose of engaging * * *
     [Derivium] to provide or arrange financing(s) and provide
     custodial services to * * * [petitioners] with respect to
     certain securities and assets (“Properties”) to be pledged
     as security, the details of which financing and Properties
     are to be set out on loan term sheets. * * *

     In executing the master agreements, petitioners granted

Derivium complete control over the transferred FDRY stock.

Paragraph 3 of each schedule D, Disclosure Acknowledgment and

Broker/Bank Indemnification, of each master agreement provides,

in pertinent part:

     [Petitioners] understand that by transferring securities as
     collateral to * * * [Derivium] under the terms of the
     Agreement, * * * [petitioners] give * * * [Derivium] the
     right, without notice to * * * [petitioners], to transfer,
     pledge, repledge, hypothecate, rehypothecate, lend, short
     sell and/or sell outright some or all of the securities
     during the period covered by the Loan. * * * [Petitioners
     understand] that * * * [Derivium] has the right to receive
     and retain the benefits from any such transaction and that
     the * * * [petitioners are] not entitled to these benefits
     during the term of the loan.



     2
      When Derivium transferred $4,638,654 to petitioners on May
3, 2000, it continued to hold 2,700 shares of FDRY received on
Apr. 27, 2000. Derivium transferred 90 percent of the value of
these 2,700 shares as part of the $2,766,066 paid to petitioners
on Jun. 21, 2000.
                               - 4 -

Accordingly, Derivium funded the “loan” payments made to

petitioners by selling the FDRY stock.

     In connection with each master agreement, Derivium sent

petitioners a schedule setting forth the essential terms of the

transactions (schedule A).   Pursuant to each schedule A, the

alleged loans:   (1) Had a term of 3 years at an interest rate of

10.5 percent annually accruing until and due at maturity; (2) did

not permit prepayments before maturity; (3) did not include

margin requirements; (4) could not be called; (5) were

nonrecourse; and (6) were renewable at the borrowers’ request.

     Petitioners did not make any payments to Derivium during the

term of each “loan”.   The price per share of FDRY ranged between

$82 and $87 when petitioners transferred 65,013 shares to

Derivium pursuant to the first master agreement.   At maturity of

the first “loan”, the price per share of FDRY was approximately

$10.38.   The price per share of FDRY ranged between $110 and

$111.87 when petitioners transferred 25,000 shares to Derivium

pursuant to the second master agreement.   At maturity of the

second “loan”, the price per share of FDRY was approximately

$14.81.   Accordingly, rather than repaying the “loans” at

maturity in 2003, petitioners walked away from each “loan”,

keeping the $4,638,654 and the $2,766,065 received from Derivium,

respectively, and forfeiting the FDRY stock pledged as

collateral.
                               - 5 -

     Petitioners’ basis in the FDRY stock transferred to Derivium

in both transactions was 10 cents per share.   Petitioners

acquired the FDRY stock transferred to Derivium in both

transactions during February and March of 2000.    Petitioners did

not report the $4,638,654 or the $2,766,065 received from

Derivium on their 2000 Federal income tax return.    Rather,

petitioners reported the transactions as stock sales in 2003, the

year the “loans” reached maturity.

                            Discussion

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.    Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).    The Court may grant

summary judgment when there is no genuine issue of material fact

and a decision may be rendered as matter of law.    Rule 121(b);

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd.

17 F.3d 965 (7th Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753,

754 (1988).   The Court will view any factual material and

inferences in the light most favorable to the nonmoving party.

Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985); Naftel v.

Commissioner, 85 T.C. 527, 529 (1985).    We conclude that there

are no genuine issues of material fact, the transactions at issue

were sales in 2000 for Federal income tax purposes, and a

decision may be rendered as a matter of law.
                               - 6 -

     As discussed above, the transactions at issue in this case

are nearly identical to those we described in Calloway v.

Commissioner, 135 T.C. 26 (2010).   The taxpayers in Calloway and

petitioners both entered into the 90-percent-stock-loan program

with Derivium pursuant to the same master agreement and “loan”

terms.   In Calloway, we held that the transaction was not a loan

and that the taxpayers sold their stock in the year the stock was

transferred to Derivium.   In reaching that conclusion, we

analyzed the transactions at issue by applying the following

factors:   (1) Whether legal title passes; (2) how the parties

treat the transaction; (3) whether an equity interest in the

property is acquired; (4) whether the contract creates a present

obligation on the seller to execute and deliver a deed and a

present obligation on the purchaser to make payments; (5) whether

the right of possession is vested in the purchaser; (6) which

party pays the property taxes; (7) which party bears the risk of

loss or damage to the property; and (8) which party receives the

profits from the operation and sale of the property.   See id. at

34; see also Grodt & McKay Realty, Inc. v. Commissioner, 77 T.C.

1221, 1237-1238 (1981).

     Petitioners concede the transactions at issue are “quite

similar” to the transactions in Calloway.   In fact, petitioners

argue only a single factual distinction from Calloway.

Petitioners argue that while the taxpayers in Calloway failed to
                                - 7 -

report the 90-percent-stock-loan program with Derivium on its

Federal income tax returns, petitioners reported the transactions

as sales in 2003, when the “loans” reached maturity and they

decided to walk away from the transactions.

     Without any further explanation, petitioners argue this

distinction from Calloway v. Commissioner, supra, is significant.

We disagree.    The fact that petitioners treated the transactions

as loans in 2000 and reported them as sales in 2003 does not make

them so.   In fact, as respondent suggests in brief, the only

material significance of petitioners’ reporting position in 2003

is that it supports the argument that petitioners are not subject

to penalties.   No penalties have been determined.

     Petitioners further argue that on summary judgment all

factual issues must be resolved in favor of the nonmoving party

and, therefore, an analysis of the eight factors used by this

Court in Calloway to determine whether a transaction is a loan or

a sale requires this Court to deny respondent’s motion.   This

argument is without merit.    Petitioners have not analyzed any of

the eight factors discussed above, nor have petitioners presented

relevant factual distinctions from Calloway.    We find any further

analysis to be unnecessary.   Accordingly, consistent with our

holding in Calloway, we hold that petitioners sold the FDRY stock

in 2000, and we sustain respondent’s determinations with respect

to the transactions at issue.
                                 - 8 -

     We have considered all of petitioners’ contentions,

arguments, and requests that are not discussed herein, and we

conclude that they are without merit or irrelevant.

     To reflect the foregoing,


                                              An appropriate order and

                                         decision will be entered.
