Background Note | HBS Case Collection | December 2004 (Revised August 2007)

LTCM's Profit Motive

by Henry B. Reiling and Kevin Wall


This case summarizes the finding and reasoning inherent in the economic substance and penalty imposition holdings of the district court decision in Long Term Capital Holdings v. United States. The court upheld the IRS's contention that a transaction between Long Term and a putative investor lacked economic substance and must be disregarded for U.S. income tax purposes. The effect was to deny the partnership a net, long-term capital loss of $106 million. The court also imposed $16 million of penalties for gross inaccuracy.

Keywords: Taxation; Laws and Statutes; United States;


Reiling, Henry B., and Kevin Wall. "LTCM's Profit Motive." Harvard Business School Background Note 205-054, December 2004. (Revised August 2007.)