                            T.C. Memo. 2011-292



                          UNITED STATES TAX COURT



               TERRY L. AND CHERYL A. WRIGHT, Petitioners v.
                COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 30957-09.               Filed December 22, 2011.



        Frank O’Neal Hendrick, for petitioners.

        Tammra S. Mitchell, for respondent.



                            MEMORANDUM OPINION


        WELLS, Judge:    The instant case is before the Court on

respondent’s motion for partial summary judgment pursuant to Rule

121.1       The sole issue we are asked to decide is whether an over-



        1
      Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended, and Rule references
are to the Tax Court Rules of Practice and Procedure.
                                - 2 -

the-counter foreign currency option entered into by a limited

liability company wholly owned by petitioners was a “foreign

currency contract” as defined in section 1256(g)(2).

                            Background

     The facts set forth below are based upon examination of the

parties’ pleadings, moving papers, responses, and attachments.

     Petitioners are husband and wife who resided in Tennessee at

the time of filing the petition.    At all relevant times,

petitioners each owned 50 percent of Cyber Advice, LLC (Cyber

Advice), a Georgia limited liability company.    Petitioner Terry

L. Wright (Mr. Wright) was president of Cyber Advice and its

member manager.   During 2002 Cyber Advice was taxable as a

partnership for Federal income tax purposes.

     During 2002 Cyber Advice authorized Multi National

Strategies, LLC (Multi National), to engage in various over-the-

counter foreign currency option transactions.    Mr. Wright and

Multi National agreed that Beckenham Trading Company, Inc.

(Beckenham), would serve as the counterparty to the foreign

currency option transactions.   During December 2002 Cyber Advice

purchased from Beckenham nine over-the-counter foreign currency

options, and it sold to Beckenham nine offsetting over-the-

counter foreign currency options.    In his motion for partial

summary judgment, respondent contests only Cyber Advice’s
                               - 3 -

reporting of one of those transactions, so we will describe only

that transaction.

     On December 20, 2002, Cyber Advice purchased a euro put

option for a premium of $36,177,750 (the euro put option).    The

euro put option gave Cyber Advice the right to sell to Beckenham

on the expiration date of the option €1,237,477,902 for

$1,260,000,000.   On December 23, 2002, Beckenham, Cyber Advice,

and the Foundation for Educated America, Inc. (FEA), entered into

an agreement whereby they assigned the euro put option to FEA.

At the time the euro put option was assigned to FEA, it was

valued at $33,018,574.   Relying upon Greene v. United States, 79

F.3d 1348 (2d Cir. 1996), Cyber Advice took the position that the

assignment of the euro put option to FEA resulted in a

termination as defined in section 1256(c).   With respect to the

transaction involving the euro put option, Cyber Advice therefore

reported a short-term capital loss of $3,159,176 on Schedule D,

Capital Gains and Losses, of its 2002 Form 1065, U.S. Return of

Partnership Income.   Because Cyber Advice was taxed as a

partnership during 2002, the effects of that loss flowed through

to petitioners.

     Petitioners timely filed their Federal income tax return for

2002.   Respondent subsequently issued a notice of deficiency, and

petitioners timely filed their petition with this Court.
                                - 4 -

                             Discussion

     Rule 121(a) allows a party to move “for a summary

adjudication in the moving party’s favor upon all or any part of

the legal issues in controversy.”   Summary judgment is

appropriate “if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that a decision may be

rendered as a matter of law.”   Rule 121(b).   Facts are viewed in

the light most favorable to the nonmoving party.    Dahlstrom v.

Commissioner, 85 T.C. 812, 821 (1985).    The moving party bears

the burden of demonstrating that no genuine issue of material

fact exists and that the moving party is entitled to judgment as

a matter of law.    Sundstrand Corp. v. Commissioner, 98 T.C. 518,

520 (1992), affd. 17 F.3d 965 (7th Cir. 1994).   We conclude that

partial summary judgment is appropriate in the instant case

because the material facts are not in dispute.   The parties’ only

disagreement is the proper interpretation of section 1256.

     Section 1256(a)(1) generally permits certain financial

instruments to be marked to market on the last business day of

the taxable year.   Any gain or loss on those contracts is

included on the taxpayer’s Federal income tax return.     Sec.

1256(a)(1).   Section 1256(b) defines a “section 1256 contract” to

include:   (1) Any regulated futures contract; (2) any foreign
                                  - 5 -

currency contract; (3) any nonequity option; (4) any dealer

equity option; and (5) any dealer securities futures contract.

Section 1256(b) excludes from the definition of a “section 1256

contract” any securities futures contract or option on such a

contract unless the contract or option is a dealer securities

futures contract.   Section 1256(c)(1) applies the mark-to-market

rule from section 1256(a) to instances where taxpayers terminate

or transfer their obligations or rights under a regulated futures

contract.

     A “regulated futures contract” means a contract with respect

to which the amount required to be deposited and the amount which

may be withdrawn depend on a system of marking to market and

which is traded on or subject to the rules of a qualified board

or exchange.   Sec. 1256(g)(1).    A qualified exchange means a

national securities exchange which is registered with the

Securities and Exchange Commission, a domestic board of trade

designated as a contract market by the Commodity Futures Trading

Commission, or any other exchange, board of trade, or other

market which the Secretary determines has rules adequate to carry

out the purposes of section 1256.     Sec. 1256(g)(7).

     Section 1256(g)(2) defines a “foreign currency contract” as

a contract:

          (i) which requires delivery of, or the settlement of
     which depends on the value of, a foreign currency which is a
     currency in which positions are also traded through
     regulated future contracts,
                                - 6 -

           (ii) which is traded in the interbank market, and

          (iii) which is entered into at arm’s length at a price
     determined by reference to the price in the interbank
     market.

We have discussed the language, requirements, and legislative

history of section 1256 in more detail in Summitt v.

Commissioner, 134 T.C. 248 (2010).

     Because the euro put option Cyber Advice assigned to FEA was

denominated in a major currency, it is a major foreign currency

option.   A major foreign currency is a “currency in which

positions are * * * traded through regulated futures contracts”.

Sec. 1256(g)(2)(A)(i).   Major currencies include the U.S. dollar,

British pound, Japanese yen, Swiss franc, and European Union

euro.

     Petitioners contend that a major foreign currency option is

a “foreign currency contract” subject to the mark-to-market rules

of section 1256.   Petitioners further contend that, pursuant to

section 1256(c) and Greene v. United States, supra, when they

assigned their major foreign currency option to a charity, that

assignment constituted a termination of the contract requiring

them to recognize their loss.

     Respondent’s motion asks us to decide whether a major

foreign currency option is a “foreign currency contract”

qualifying for section 1256 treatment.   We have already decided

that issue in Summitt v. Commissioner, supra, and in Garcia v.
                               - 7 -

Commissioner, T.C. Memo. 2011-85.   In both of those cases, we

held that a major foreign currency option is not a foreign

currency contract.

     In Summitt v. Commissioner, supra at 264, we analyzed the

“delivery” or “settlement” requirement under section 1256(g)(2),

concluding:

     A foreign currency option is a unilateral contract that does
     not require delivery or settlement unless and until the
     option is exercised by the holder. An obligation to settle
     may never arise if the holder does not exercise its rights
     under the option. It is clear that, as originally enacted
     in 1982, * * * [the statute] applied only to forward
     contracts. The statute referred to a contract which
     required delivery of the foreign currency, not to a contract
     in which delivery was left to the discretion of the holder.

We further held that the phrase “or the settlement of which

depends on the value of” in section 1256(g)(2)(A)(i), which was

added to the original statute pursuant to the Deficit Reduction

Act of 1984, Pub. L. 98-369, sec. 722(a)(2), 98 Stat. 972, was

added:

     to allow a cash-settled forward contract to come within the
     term “foreign currency contract”. Foreign currency
     contracts can be physically settled or cash-settled, but
     they still must require, by their terms at inception,
     settlement at expiration. * * *

Summitt v. Commissioner, supra at 264-265.   On the basis of our

conclusion that the plain language of the statute was

“dispositive”, we held that a foreign currency option does not

fall within the meaning of a “foreign currency contract” under

section 1256(g)(2).   Id. at 265.
                                 - 8 -

     Petitioners do not attempt to factually distinguish the

instant case from Summitt and Garcia.       Rather, petitioners

contend that Summitt and Garcia were wrongly decided.       We

disagree.   Following Summitt and Garcia, we hold that Cyber

Advice’s major foreign currency option was not a “foreign

currency contract” as defined in section 1256(g)(2).

Accordingly, we will grant respondent’s motion for partial

summary judgment.

     In reaching these holdings, we have considered all the

parties’ arguments, and, to the extent not addressed herein, we

conclude that they are moot, irrelevant, or without merit.

     To reflect the foregoing,


                                         An appropriate order will be

                                 issued.
