Tax Court Issues Decision Recharacterizing Term Securities Loan

On March 16, 2009, the Tax Court decided Samueli v. Commissioner, which held that a transaction documented as a securities loan did not qualify for favorable treatment under section 1058 of the Internal Revenue Code because the lender did not have the right to require the borrower to return the securities at any time on short notice. Although the transaction addressed in the case arose in a specific context and was not a standard securities loan, the case is important because there are no other court decisions or published rulings that address the question of whether a term securities loan qualifies for the benefits of section 1058. The memorandum discusses the facts and holdings of the case and the broader implications the decision potentially could have on securities loans and repo transactions.