-52-
at a loss in 1979. Because the losses were on purchased puts, they
purportedly qualified for ordinary loss treatment under section
1234.42
The $163,666 in net short-term capital gain Tandrill reported
for 1979 represents the excess of its short-term capital gains of
$1,736,366 over its short-term capital losses of $1,572,700.
Tandrill realized its short-term capital gains on put options on
Treasury bills and the short-term capital losses from the loss legs
of futures straddles on gold, silver, copper, and Treasury bills.43
Tandrill’s $1,509,077 of long-term capital gain for 1980 resulted
from the closing out of Tandrill’s commodity futures straddles.
We are convinced that Tandrill’s overall trading strategy was
geared toward the assurance of tax savings for its partners rather
than a real profit motive. See, e.g., Leslie v. Commissioner, T.C.
Memo. 1996-86 (dealing with profit motive in gold futures
transactions). And profit motive is the crucial test. See, e.g.,
Fox v. Commissioner, supra at 1021.
42 Sec. 1234(a)(1) provides that the character of the gain
or loss on the sale or exchange of a purchased option is the same
as the character of the gain or loss on the sale of the property
to which the option relates. Because Treasury bills were at that
time specifically excluded from the definition of a capital asset
by sec. 1221(5), Tandrill reported the losses as ordinary losses.
43 Under sec. 1234(b), the character of the gain or loss
recognized on the closing out of granted options is short-term
capital gain or loss.
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