please the court my name is adam charnas and i represent the taxpayers of the rights in this appeal this case presents a straightforward question of statutory interpretation the rights company purchased a long euro  type of foreign currency option and the question is whether that option falls within the statutory definition of foreign currency contract section twelve fifty six of the internal revenue code the parties disagree about only one aspect of that relatively complicated definition and that is whether the option quote requires delivery of a foreign currency unquote or alternatively whether a settlement of that option quote depends on the value of a foreign currency under the plain language of the statute major foreign currency options such as the euro put here satisfies in our view both the settlement pran and the delivery pran of the statutory definition so the option was a foreign currency contract under section twelve fifty six because the statutory language is clear we don't think it is either appropriate it is your necessary or appropriate to consult the legislative history but reviewing the legislative history wouldn't change the result anyway for these reasons we think the tax court's holding should be reversed the statutory language here we submit is not particularly difficult to interpret if you put policy considerations which we submit are what's driving the summit decision in the tax court in the commissioner's brief aside the language is is clear says the term foreign currency contract means a contract which requires the delivery of the settlement of which depends on the value of a foreign currency and in the middle of that definition is the word or which means that there are two different routes in order to satisfy the definition statutory definition a foreign currency contract you can either show it or for it to be a foreign currency contract it's a contract that number one requires delivery of a foreign c alternatively number two it's also for an additional foreign currency contract if the settlement of the contract depends on the value of the far and we submit the both of those aspects are satisfied  here and start with the settlement aspect which i think is is clear the clearer of the two there is real need there's no real dispute that the settlement of this option depends on the value of foreign currency  d settlement occurs it's a cast someone means cash element and it turns on the relative value of the euro compared to what the strike price was in the option and therefore depends on the value of the euro at the time of exercise and the commissioner in his brief doesn't dispute this but what do you do with the argument that although you could parse the words that would it leads kind of to an absurdity that no one could have  it you know like your high school english teacher would parse it it leads to your conclusion but if you kind of look at it generally to try to see what they're accomplishing it leads to another conclusion what do you do that you just say we're not allowed to do that well if it's truly truly leads to irrational result then the court can concert looks pretty irrational to the result in this case looks pretty rational well i do need you just do a very complex four way transaction which you know part of it balances out this way and part of it balances out that way so in the end you don't risk any money and three days later you have a loss of three million dollars i mean that just seems like can't be what congress intended to allow that well i think this is to say i understand your point you're on this does to separate points there first of all the statutory language is the statutory language missioner at argument  and we our position is that this was part of the materials that are available for us to understand putting aside you know a committee report particular put inside a committee report drafted by a staffer in the balance of congress that a member of congress may or may not have seen i'm not even getting it all out i'm just saying if you look at this chart page twelve of their brief i mean it sort of lays it all out you know the law and we got along on the shore and the euro in the chrono and put in the call you know the case the government can seek to disallow this loss under an entirely different doctrine with a different rationale and that's whether there's economic substance here or not and that issue is open on  agrees with us and applies what we think is the plain language of the statute the government however that that makes sense to me i understand that the government is i'm struggling here i just don't understand the stuff i understand that but i'm wondering whether that doesn't in addition suggest that there's some market system for foreign currency futures now there are only two other types of investment vehicles in which you can invest on the future value of a foreign currency there are forwards and there are options so in one thousand anyone congress said futures are covered by mark to market system in one thousand nine hundred eighty two congress amended the statute again to add the definition of foreign currency contract if congress intended to apply mark to market only to forwards and makes more sense to suggest that to think that congress would have used the word forward as it does many other places in the internal revenue code but there are at least we have the word delivery the problem is when they add this or the settlement language right well that's right it does that but with bigger problem because you say that's yuri's your argument which i think is true we would suggest that the delivery language covers that as well understand but if you could focus on the settlement  words more persuasive to me yes and in one thousand nine hundred four congress made a number of additional changes to the statute including adding listed exchange traded options foreign currency options as well as allowing  cash settlement of options and what could that have what could they have intended to mean that the language doesn't provide i guess the settlement language that's eighty four ninety right is my question make and since no no there that's fair i'm not sure it made sense to me either if if this looks like if you read it if you parse it grammatically which requires delivery of or the settlement of which in the second part of the or the first part just goes away so it just says it means a contract the settlement of which depends on the value of a foreign currency and that seems to do away with the requirement of a delivery i'm asking whether congress may have wanted to do something that it didn't do and if it did want to do that then we can go to the second question how might it have said that differently and i guess the alternative that they might have been trying to do but did in artfully was to broaden the definition of the what they had already they had already requires delivery of a foreign currency they could have said requires either the delivery of a foreign currency or if settled something that depends on the value of the foreign currency that's kind of looks like what they were kind of trying to do well but they don't they just didn't do very well is that is that i'm asking just so i know what generally is going on here is that a fair view of what's going on here i think the answer is yes they could have written it a different way to make to make explicit if that's what they intended and if they had it would have made a lot more sense what they were doing well i disagree with that your honor because i think here again futures are already covered and what they've done then is and are only covered if you deliver to a foreign currency if now under this alternative this sort of third alternative i'm hypothesizing it would have expanded it to not requiring delivery of a foreign currency but which one requires in the alternative settlement which depends on the value of foreign currency that would have expanded it but still kept it in in the in the futures concept but i it they were trying to do that just a few words have to be changed here i'm not going to try to redraft it would just be a few words it would be a few words with those words the congress didn't write and it's also important to note that congress also gave the secretary of treasury authority to promulgated regulations expressly to narrow the congressional definition if it didn't make sense for a matter of policy and many commentators and even the i r s itself have read this language as saying it can be read to include foreign currency options and in fact for a period of four or five years that's exactly how how the i r s read it and we think that's the more natural reading if it's truly irrational if it leads to a result that would destroy the statute per congress purposes that then yes you can distort and torture the statutory language we think here at most this leads to a bad policy result from the commissioner's perspective and that's not enough to do we think read the language out of its plain meeting and i ask one more question which i guess the easy answer you would give is that it's not relevant you just go to the other basis but is this is there a colorable economic basis for doing something like this other than shifting when you recognize a loss the right and you wouldn't do that no one would do this because it all comes out even that's the whole goal is that it comes comes out even no matter what happens right well yes but that's that's fairly common investment strategy the rights you know on remain and would present as they explained to the i r s and as it is in the record you know this was part of their investment strategy and they will present evidence on remand if given the opportunity that this was part of a rational economic strategy and it's such a obscura one that you can just sort of shaded in for us in a sentence or two with all they investment strategy would have something that they were really offsets everything so that you come out even later i mean i don't well it doesn't totally offset these remember these are different currencies that while maybe generally trade together there's no guarantee that they trade together  know the whole basis for the structure is that they will trade together well the exits are not if they're not doing it on the basis that they won't trade to get advice on it on the basis that they will trade they are what they told the i r s was that they were informed by multinational that there was a significant opportunity for profit potential here and that's why they entered into these transactions and that certainly some way in which they would make a profit i mean they've got it structured so that if they make that profit they automatically lose it in of these other well no that's that's only if the if the two different currencies in fact trade directly in proportion to see whether and that's there's no guarantee that will happen and get it looks from the structure i mean who knows on the accountants or looks from the structure like they're depending on their being traded equally well your honor if that's really the the i r s is position and if that's and if that's right they can make that argument improve it under the economic substance doctrine and disallow the loss you answer my question thank contract which requires delivery over the settlement which depends upon the value of major foreign currency but you know i think it's we could knowledge that that was somewhat awkwardly phrased but you don't just interpret a statute by looking at the particular language the tax court called it earlier in a minute you don't like the particulars what we're supposed to do i'm sorry your honor you have to read that language in the context of the entire statute the entire out it's still got to make sense the right let me ask this differently is it not true that the statute is the exact equivalent of the following the term foreign currency contract means a contract the settlement of which depends on the value of foreign currency which is a currency which positions are also traded do you agree that that is in effect a proper reading of this which could try omitted any language about delivery there because on one side of the either or doesn't contain it is that an improper reading or a proper reading if you repeat it again your own i'm sorry feyenoord it right the term foreign currency contract means a contract income means a contract the settlement of which depends on the value of a foreign currency which is a currency in which positions are also traded through regulated futures contracts because there's an or the or is one is which requires delivery of and the other is the settlement of which depends upon so you ought by formal propositional logic to leave out one of the and still say a truth a or b is true that means a is true right i mean you can't say or b is true but only if you have both a and b i mean it doesn't is that right or wrong maybe under if you anomaly but you know it's hard for you to say that's not the language we're looking at that is that is that is language how we would really according kluges a contract the settlement of which depends on value doesn't say there has to be a settlement or a delivery just says there's a settlement it depends on the value under that reading however you're i mean that is one way to read it yes your honor is there another way to read it probably is that that reading creates and that's an interim question i'm asking is there's no other way to there you could also say that the phrasing to congress is very awkward in its phrasing and that the requirement portion of it applies to both delivery or settlement i don't see how you can do that i don't see how you can do that and with a straight face and a grammar teacher looking on i just don't see how you can do it because it just doesn't read like that you can't say which requires delivery of the settlement of which depends on this is the way i wish is structured the supreme court in the lamie case which the taxpayer said in the reply brief did say that a statute could be ungrammatical or awkward and still be clear for the proposition it was trying to establish that's the opposite what i'm asking this is not ungrammatical at all is perfectly grammatical it just read grammatically leads to the conclusion you say is terrible which looks like pretty terrible conclusion to me without but but what do i know i just got to go it named that option specifically it defined that option and it also require that the option be traded on or subject to the rules of a qualified border exchange there's no reason why a foreign currency option would be put in there would be snuck in there indirectly and not be subject to those same rules that would have one of america's my question is what if it was what do we do them if the court if it reads that way i don't know how you can get around this reading which you know and italy i wish there was a way to get her and see what the way around it is it is also interesting that congress knowing that it's writing very complex language gives you a way around it by letting you fix it by regulation is that true i think what was going on at the time is that if you look at the history you've got three amendments to the statue over the course of three years the financial landscape was changing very rapidly in congress with playing catch up we started off with regulated futures contracts regulated futures contracts requiring delivery then they allowed cash settlement then they put in you know foreign currency contracts they're playing catch up  and then in eighty four they said well ok you can take these foreign currency contracts you can cash settle those two and in playing catch up with the financial industry they may be got ahead of themselves and they didn't draft the statute as clearly as all of us would have hoped i think part of it i'm with you on all of the us i just want to know what the position of the our asses if we read this to say what it appears to say and what the other side says it says and and in a way that is not unclear if we read it to say that by its words then what's your position you lose or is there some other way that you can if there are you that we exult legislative history over the language of the statute we're not going to get my colleagues to say that we're not that we're saying is that looking at the statute as a whole but you know our point on that already in if the court were to read the statute specifically that way  that there is a there the settlement depending upon the value of that and it would have to go back would have to be every man for to consider the commissioners are theories in the commission would probably have to promulgated regulation which it has the authority to do but we do also saying that you can't the court does not have there is a legitimate way to say that this is awkward it creates an anomaly this allows us to look at the history of the statute and look at the draft a look at it or what if we don't say it's awkward but we do say it creates an anomaly that's not enough for us to change it is it or is it again if i'm asking you a hypothetical you don't have to agree with the premise  if you read this and say this is what it's ok but it creates a strange anomaly it allows people to do things that no tax policy could support assuming that we could come up with that conclusion if it's if you can show it's demonstrably at odds with the intent of the drafters then you probably could yes go for the legislative history but it also creates an anomaly within the structure of the statute and the language of the statute itself in that the fact that congress has built in a an escape hatch for anomalies make us less inclined to fix an anomaly when the language is clear  there and indeed one reason why the iris probably has not promulgated a regulation did not promise one of the time was that if you look at the notice notice two thousand three hundred eighty one where there was an unfortunate statement in the in the facts  that notice was severely criticized you look at the keys treatise which we cite and taxpayers do and the lamey there's also an article they cite in their reply brief where the notice came out it was severely criticized by the tax community which had been following the development of this over time and by corporate tax departments which had always been treating their or major over the counter options as not being marked to market because these are companies advocating so orderly what was that last statement of up until two thousand and three with the unfortunately worded facts in notice two thousand and three day shady one tax community and corporate tax departments according to the treatise and the article cited in our brief and the reply brief we're saying well our major currency options do not have to mark to market what the three knows the two thousand and three notice was put out to declare the major minor tax shelter which we're dealing with to declare an abusive tax shelter in part because often times taxpayers were not recognizing the game leg of it  so the whole purpose of that was to say this is an abuse of tax shelter we're going to crack down on it unfortunately in the factual statement instead of saying the taxpayer claims that the major currency option must be mark to market it simply said the major currency options mark to market that was corrected four years later in two thousand and seven it statement which is consistent with the elves position at least was out there as the statement of the ira or four years yes your facts which we corrected they put it out i mean that's that's what it's another point you don't have a right to rely on another point your honor is that another reason they don't cannot rely on it is that we're not just here about twelve fifty six they in order to escape the penalty they have to show substantial authority or reasonable cause in good faith for the transaction as a whole and the whole point of the notice was that this is an of shelter self it goes back on the statute it also has to go back on the penalty because they would have to show not only that on the merits that this transaction economic substance but if we could hold now there's no economic economic substance here they would then have to overcome the penalty on the reasons for the disallowance which would be that this is an abuse of shelter i think that answers the question i wanted to ask but let me make sure that if we were to rule against you in the strict reading of the statute yes but to say that the other ways in which the i r s could claim that this was invalid or still on the table what would be the proper ruling according to your client on the penalty issues those we should just remand as well everything should go back up in need for us to rule on those issues because they're tied to the argument that you being rejected there would be tied to the arguments being rejected it would have to have you your honor is with respect to the rationale for the investment i'll just refer the court to pages two thirty one to two thirty four of the supplemental appendix which is submission by the rights to buy cyber advice to the explaining the basis for the investment including the fact that they were their understanding from multinational was that there was an almost twenty five percent statistical possibility of realizing a sixty percent return on its investment obviously in future proceedings the i r s can challenge the veracity of that but could i ask a technical question and i probably won't even be able to understand the answer but the thirty three million was donated to something worth thirty three million dollars was given to a charity you have right rock but the that the tax benefit of this is in the on the order of two or three million dollar loss right what if so is there some way in which that assignment was offset by some is this is a charity really getting thirty three million dollars worth of something or not refer to the other side's brief but if it's getting something that both went skating something that went down in value and something that  what does that is that a real charity yes and are they actually getting something on the order of thirty million dollars are they getting something less my under they go will be we like these people to shelter their taxes because we can go build a new hospital or my understanding and i could be wrong about this too is they're getting something worth thirty three million dollars and they're getting an obligation that at the same time at the same time that obligates them to maybe a little bit more or less but they're not getting something that they get think they are they agreed to an obligation which is roughly at least roughly offset by the thing that they gain is that right that's right now i think it's important i be agreeable to that you know just for good will or because they might get a little bit of difference right ok thank you i think the record is silent on that but respect the trials and i was in trouble with them with respect to the two thousand and three nowness the i r s accused us and in their brief for its brief commissioner accused us of grossly misrepresenting that notice and i would just respectfully urge the court to read it because the the commissioner's reading of that is simply incorrect this is not a situation in which the commissioner has which the notice had one misstatement in which they failed to say the taxpayer claims or the taxpayer alleges there were no fewer than eight separate references in that notice to the fact that the option was a twelve fifty six contract and those up those references  i do agree with that yes your honor and finally we don't think there's any anomaly in the statute this provision twelve fifty sixty two a one deals with with foreign currency options which are not trade on exchange other provisions deal with exchange traded investments including other options and we think it makes perfect sense how congress structured the statute thank you do our best case will be