15
Discussion
The parties herein agree on two important points: (1) That
the commodity forward contracts that Holly entered into and
created with AGS constituted capital assets; and (2) that locking
in, by offset -- at any point in time during the duration or
length of forward contracts -- the gain or loss relating to the
overall straddle transaction (or the gain or loss relating to a
leg of the straddle transaction) constitutes the sale or exchange
of a capital asset.
The issue in the instant cases is whether locking in -- at
any point in time during the duration or length of a forward
contract -- a loss relating to a leg of a straddle transaction by
two methods slightly different from the offset method (namely, by
cancellation and replacement and by cancellation and termination)
also constitutes a sale or exchange of a capital asset, as
respondent contends, or whether the taxpayers can convert the
capital loss into an ordinary loss by the use of either of such
two different methods, as petitioners contend.
As is often the case, critical to resolution of the issue
before us is the statement of the issue. If the industry label
and nomenclature are accepted at face value, and if the issue
herein is stated simply in terms of whether "cancellation" of a
leg of a forward contract gives rise to capital gain or loss, as
distinguished from ordinary gain or loss, one is directed quickly
to certain case authority (discussed below) that addresses tax
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