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consequences of unexpected "cancellations" of commercial
contracts, which cases generally turn on whether property rights
relating to or arising out of the original contract survived the
cancellation and whether all rights relating to the contract
"vanished" with the cancellation. As explained below, we believe
such "cancellation" cases do not control the cancellation of
commodity forward contracts by which investors simply settle or
close out their position in a straddle or in a leg of a straddle
transaction.
As stated, the parties agree that forward contracts in
commodity markets held for investment constitute capital assets
under section 1221. Commissioner v. Covington, 120 F.2d 768 (5th
Cir. 1941), affg. in part and revg. in part 42 B.T.A. 601 (1940);
Vickers v. Commissioner, 80 T.C. 394 (1983); Hoover Co. v.
Commissioner, 72 T.C. 206 (1979). Although no delivery or
physical exchange of the underlying commodity is contemplated,
the monetary settlements that occur between the respective
parties holding the contra positions in forward contracts have
long been recognized to constitute "sales or exchanges" under the
tax laws.
As we explained in Vickers v. Commissioner, supra at 409,
involving futures contracts, for our purposes not significantly
different from forward contracts --
both the Supreme Court and the Congress have had occasions
to deal with commodity futures transactions, have treated
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