Estate of Leon Israel, Jr., Deceased, Barry W. Gray, Executor, and Audrey H. Israel - Page 14

                 In 1979, Holly reported a capital gain of $1,875 from                                
           trading in commodity forward contracts and an ordinary loss of                             
           $837,500 relating to the "cancellation" of the first group of                              
           forward contracts in issue.                                                                
                 In 1980, Holly reported capital gains in the amount of                               
           $850,000 (relating to the straddle the above loss leg of which                             
           was closed in 1979 to produce the $837,500 loss claimed in 1979)                           
           and an ordinary loss of $826,219 relating to "cancellation" of                             
           the second and third forward contracts in issue that were                                  
           "canceled" in 1980 (an $816,219 loss relating to the second group                          
           of forward contracts closed by "cancellation" and replacement,                             
           and a $10,000 loss relating to the forward contract "canceled"                             
           and terminated).                                                                           
                 In 1981, Holly reported a cumulative net short-term capital                          
           loss of $349,468 from trading in forward contracts.  The record                            
           is not clear as to the amount of the capital gain Holly reported                           
           in 1981 with respect to closing in 1981 the replacement contracts                          
           that Holly acquired in 1980.                                                               
                 On audit, insofar as is pertinent to the sole issue before                           
           us in the instant cases, respondent determined that Holly’s                                
           claimed ordinary losses (relating to the forward contracts                                 
           "canceled" and replaced and to the forward contracts "canceled"                            
           and terminated) should be treated as capital losses.                                       

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