- 13 -
supra at 568; Fulton Bag & Cotton Mills v. Commissioner,
22 T.C. 1044, 1052 (1954).
In Muldrow v. Commissioner, 38 T.C. 907, 913 (1962),
we stated that a hedge:
is a form of insurance against unfavorable fluc-
tuations in the price of a commodity in which a
position has already become fixed or, as in the
case of a producer such as a cotton grower, will
become fixed in normal course and the sale,
liquidation, or use of the commodity is to occur
at some time in the future.
A bona fide hedge requires: (1) A risk of loss by changes
in the price of something to be used or marketed in the
taxpayer's business; (2) a possibility of shifting the risk
to another person, through the purchase or sale of futures
contracts; and (3) an attempt to shift the risk. FNMA v.
Commissioner, supra at 569; Muldrow v. Commissioner, supra
at 913.
In every hedge there must be a direct relationship
between the product that is the basis of the taxpayer's
business and the commodity futures in which the taxpayer
deals for protection. E.g., United States v. Rogers, 286
F.2d 277, 281-282 (6th Cir. 1961). There must also be a
close relationship between the price of the product and
the price of the commodity future. E.g., id. at 282;
Hoover Co. v. Commissioner, 72 T.C. 206, 231 (1979).
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011