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2817. Hereinafter, our references to "DEFRA section 108" are to
that section as amended, unless otherwise stated.
DEFRA section 108(a) provides as follows:
(a) General Rule. -- For purposes of the Internal
Revenue Code of 1954, in the case of any disposition of
1 or more positions--
(1) which were entered into before 1982 and
form part of a straddle, and
(2) to which the amendments by title V of the
Economic Recovery Tax Act of 1981 do not apply,
any loss from such disposition shall be allowed for the
taxable year of the disposition if such loss is
incurred in a trade or business, or if such loss is
incurred in a transaction entered into for profit
though not connected with a trade or business.
By notice of deficiency, respondent determined that
petitioner's straddle losses are not deductible under section
165(c)(2) because the transactions were not entered into for
profit. Petitioners contend that their entire course of conduct
before the investment, during the commodity trading with Hunter,
and after the initial Hunter investment through the time of the
investment with Merrill Lynch all reflect that petitioner's gold
straddle transactions were entered into for profit.
Petitioners contend that all of petitioner's investment and
commodity trades were consistent with his long-standing invest-
ment history. They argue that petitioner's commodity spread
trading was motivated primarily by petitioner's desire to find
investments with a modicum of risk in exchange for a large cash
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