United States' Motion to Exclude Expert Testimony of Plaintiffs'

premium variation, but the second and third steps are virtuallyidentical. The steps are as follows:1. The taxpayer purchases and writes options tied to the sameunderlying asset.For example, a taxpayer might purchasecall options for a cost of $1,000X and simultaneously writeoffsetting call options, with a slightly higher strikeprice but the same expiration date, for a premium ofslightly less than $1, OOOX.2. The taxpayer contribut s the purchased option and thepartnership assumes th taxpayer's obligation with respectto the written option. Thereafter the partnership engagesin investment acti vi ti s.3. The taxpayer sells the partnership interest for nominalconsideration.The taxpayer takes the position that the contribution ofthe options in Step 2 gives rise to an outside basis of $1, OOOX.The taxpayer's basis in the option he purchased in Step 1 equalshis cost ($1,0 OOX) . sti tuted basis in his partnershipinterest thus equals $1,000 , IRC §722, before reducing thatbasis for liabilities, were transferred in Step 2. Thetaxpayer's argument is that the option he wrote in Step 1 is nota "liability" for purposes f IRC §752 (b), and therefore nobasis reduction is on account of the partnership'sassumption of that obligati In Step 3, when the partner- 14 -