FYI
----- Forwarded by Mark Taylor/HOU/ECT on 02/14/2001 10:04 AM -----

	SULLIVAN&CROMWELL@sullcrom.com
	02/13/2001 09:13 AM
		 
		 To: Mark.Taylor@enron.com
		 cc: 
		 Subject: S&C Memo Re:Proposed Regulations Providing for Ordinary Character 
Treatment for Hedging Transactions


Re: Proposed Regulations Providing for Ordinary Character Treatment
for Certain Hedging Transactions

                     Attached is a memorandum, dated February 12, 2001,
from Sullivan & Cromwell concerning the above subject. A summary is
also included at the end of the text of this e-mail message.

                     The attached file is in Adobe Acrobat
format.  We believe most PCs will already have an Acrobat viewer
loaded; we can provide free copies if Acrobat is not already loaded,
and free copies can also be downloaded from the Adobe Acrobat web
site at www.adobe.com.  To view or print the memo use your e-mail
system's function for opening attachments in their native format.
Hard copies can be obtained from Ivy Moreno at S&C in New York,
telephone 212-558-3448, e-mail: Morenoi@sullcrom.com.


SUMMARY

                    On January 18, 2001, the Internal Revenue
Service (the "IRS") issued proposed regulations (the
"Proposed Regulations") under Section 1221 of the Internal
Revenue Code (the "Code") providing for the income and
loss from most business hedging transactions to be treated
as ordinary.

                   The Proposed Regulations reflect changes
made to Section 1221 by the Ticket to Work and Work Incentives
Improvement Act of 1999.  The Proposed Regulations are
practically identical to existing regulations under Section
1221 (the "Existing Regulations") with two modifications
reflecting the changes in the law -- (1) they adopt a risk
"management" standard for defining a hedging transaction
(as opposed to the risk "reduction" standard used in the
Existing Regulations) and (2) they remove the special
rule imposing certain additional conditions on hedges of
non-inventory supplies.  The Existing Regulations have not
been withdrawn, but the Proposed Regulations are proposed
to be effective for transactions entered into on or after
January 18, 2001.

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 - CMS10769.pdf